Dynamics of Several Stocks

We first extend the continuous-time model of stock dynamics presented in Chapter 11 to the case of several correlated stocks. This model will then be used in our analysis of stock portfolios.

Suppose there are n assets The price p-, of the rth asset, for / = 1, 2, .3, , . ., n, is governed by a standard geometric Brownian motion equation where Zj denotes a Wiener process, but with variance parameter erf rather than 1 This is equivalent to the standard model for a single stock The new element here is that the assets are correlated through the Wiener process components . In particular,

We define the covariance matrix S as that with components cr/y, and we use the convention of = ati. We usually assume that S is nonsingular.

From Chapter 11, each asset / has a lognormal distribution, and at time

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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