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Stochastic finance - Assignment Example

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Stock’s terminal value S has a uniform distribution: that is, it is equally likely to assume any value in the range (0-100) and will not assume any value outside of this range. The random variable x on which this stock’s value is based has a density function p(x) =1 for 0…
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Download file to see previous pages (a) The data used in this question has been obtained from Yahoo Finance ( and the companies considered are; AMERICAN AIRLINES GROUP INC, RADIAN GROUP INC and PHARMATHENE INC. These three companies trade in stocks and are listed in National Association of Securities Dealers Automated Quotations (NASQAD), New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) respectively. To analyze the changing trend in stock prices, I have considered daily closing stock prices for each of the three companies listed above and extracted a 30 day information ending 12th May 2015 (see excel work book; sheet 1)
(b) Sheet 1 of the excel work book shows the calculations for the logarithmic changes in the daily closing stock prices for each of the three listed companies in their respective stock markets. The table in the appendix section has the results to these calculations. A 30 day result is considered.
The curve shown in the graph above clearly indicates the performance in the stock markets for the American company. The daily closing stock prices for American Airlines Group Inc, a company in the NASQAD markets tends to be stable by showing a regular drop in stock prices over the first few weeks. The growth rate however tends to shoot and hitting its maximum of $52.71 after which the drop is drastic and reaches its minimum of $47.01 before picking up gradually towards the end of the six week period. These changes in daily closing stock prices for American Airlines Group Inc are concentrated around its mean stock price of $49.13 and hence a normal distribution.
Compared to the American Airlines Group Inc, the trend in Radian Group Inc, listed in NYSE, is a steady upward growth for stock prices for the first days within the analysis period. The price then changes the growth pattern suddenly and hits its highest of $18.45 before reducing to $16.7; the least price during the period. Stability in growth around the mean price of ...Download file to see next pagesRead More
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