A Simple Case-Study Demonstration on the Analysis of Stock Prices Using Geometric Brownian Motion

This study centered on the application of the Geometrical Brownian motion in the analysis of stock prices. It featured the estimations of the drift of stock prices, the volatility of stock prices, and the expected values and the associated variances of stock prices at any given time, even in the future. From the illustrative example presented, based on the study data from a Nigeriabased company (with coded name, Omega Ventures), the value of the drift of the weekly stock prices showed that, on the average, the stock prices of the company fell at the rate of 0.000339 weekly for the four year period under study. With the value of volatility obtained revealed that, on the average, the weekly changes in the company’s stock prices vary at the rate of 0.020567 – which is considered relatively low – an indication of the estimability of the company’s future stock prices. Finally, the future stock prices of the company were estimated, and there was a decrease in stock prices with time within the four year period under study, though it was very minute. Also, there was an increase in the variance of stock prices as the time interval increases.