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Engineering 25. Prob 7.18 Solution Stock Market Simulation: Buy? Sell? Hold?. Bruce Mayer, PE Licensed Electrical & Mechanical Engineer [email protected] Scenario. Behavior of Certain Stock Price, P, is randomly set by NORMAL distribution µ = $100 σ = $5

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slide1

Engineering 25

Prob 7.18SolutionStock Market Simulation:

Buy? Sell? Hold?

Bruce Mayer, PE

Licensed Electrical & Mechanical [email protected]

scenario
Scenario
  • Behavior of Certain Stock
    • Price, P, is randomly set by NORMAL distribution
      • µ = $100
      • σ = $5
    • Simulate Stock behavior over 250 days (1 trading year)
  • Trading Algorithm
    • If P<100, → BUY 50 Shares
    • If P>105 → SELL ALL shares
    • If 100< P < 105 → HOLD
    • Add to Profit the Value of Stock HELD at END of Year
key to problem
Key to Problem
  • The Critical Issue required to get close to the BOOK answer is to realize:
  • That at YEAR’S END we must Assess the Value of Any Shares NOT SOLD
    • We will Very Likely (84.13% chance) have shares “Left Over” if P250 < $105
  • Add the Held-Over Value to the previous selling profit
method 1 results 1 run
Method-1 Results (1-Run)

=Stock purchase Profit summary =

SellDays =

38

BuyDays=

133

HoldDays=

79

NoSharesLeftInPortfolio=

50

YearEndPrice=

98.9097

YearEndValue=

4.9455e+003

DailyProfit=

6.4715e+004

TotalProfit=

6.9660e+004 

method 2 results
Method-2 Results

mean_yearly_profit=

6.5054e+004

min_yearly_profit=

4.9024e+004

max_yearly_profit=

9.0948e+004

std_profit=

5.7442e+003

MEAN_YrEnd_Price=

99.8867

AVG_YrEnd_Shares=

154.4088

MIN_YrEnd_Shares=

0

MAX_YrEnd_Shares=

1250

method 1 499 runs
Method-1: 499 Runs

= Stock purchase Profit summary =

MAXProfit=

8.5555e+004

MINProfit=

4.6147e+004

AvgProfit =

6.4593e+004

StdPprofit=

5.7947e+003

AvgEndShares=

168.0361

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