INNOVATION PROJECT ON

A BASIC MONTE CARLO SIMULATION – STOCK PRICE OF RELIANCE (EQUITY)

Submitted in partial fulfilment of requirement for the award of the degree of MBA in Business Analytics, 2021-2023

UNDER THE GUIDANCE OF: SUBMITTED BY:

DR. DEEPTI AGARWAL AARUSHI GARG - 2K21/BMBA/04
ASSISTANT PROFESSOR, USME – DTU SNIGDHA DHUPAL - 2K21/BMBA/20
 

DELHI TECHNOLOGICAL UNIVERSITY

formerly Delhi College of Engineering
(under Delhi Act 6 of 2009, Govt. of NCT of Delhi)
Accredited with ‘A’ Grade (CGPA 3.22 out of 4.0) by NAAC (1st Cycle)
ISO 9001:2015 Certified
Objectives of the study

• To calculate the intraday return to check for the profitability in a day.

• To calculate the simulated prices using the intraday prices to further base the
study on probability
• To check the volatility of stock by using Standard Deviation.
 Introduction
• Investments in the stock market are not risk-free. If the analysis of the stock is not done correctly then
there may be a chance of incurring a loss.
• To avoid such losses and increase the chances of profitable investments, it is necessary to do the
proper analysis using various methods or by taking the stock calls from the stock market forecasters.
• Stock market forecasters develop a successful approach to forecast or predict the stock market prices
to earn good profit using trading strategies.
• There are generally two kinds of analysis- Fundamental analysis and technical analysis.
• The fundamental analysis predicts the price of the stock using the financial statement of the company
whereas the technical analysis predicts the price of the stock using the historical data of the stock.
•  The third method is the Monte Carlo Simulation- Monte Carlo Simulation (MCS) is a computer-
based approach developed in the 1940s for the analysis of.
• It involves statistical sampling by inputting the random numbers into the model which results in the
probabilities which in turn helps us determine the performance of the developed model
     
  

Research Methodology
RANDOM INPUT PROCESS OUTPUT OF THE
DISTRIBUTION MODEL SIMULATION

Sample Application of Monte Carlo Simulation

Following are the steps used for forecasting:

 1. Import the Historical Data from NSE website  Reliance Equity  Price for an year.

2. Filter the columns not required, we require only the date and opening and closing prices of the stock.
3. Calculate the intraday return of the stock, the formula for this is as follows:
4. For calculating the simulated prices
Last given price*(1+NORM.INV(RAND(),0,volatility))
 
5. Volatility is calculated by taking the standard deviation of the intraday returns, the function used in Excel is:
STDEV.S(number1,[number2],…)
 
6. Calculation of probabilities using DATA TABLE

7. Calculating MEAN price, MEDIAN price, STANDARD DEVIATION of price and PERCENTILES:
  Mean = AVERAGE(number1,[number2],…)
Median = MEDIAN(number1,[number2],…)
Standard Deviation = STDEV.S(number1,[number2],…)
Percentile = PERCENTILE.EXC(array,[k])
 
Findings

Fig 3.1 shows the

simulated price on line
chart

Fig 3.1
 Fig 3.2 shows the
range in which the
price should fall
under for the
particular time frame
on scattered diagram

Fig 3.2
Fig 3.3 shows the statistical operations, where in, volatility of stock price, mean price(simulated),
median price(simulated), standard deviation of simulated prices had been found out using excel
spreadsheets.

Fig 3.3
Conclusion
 In conclusion, from the derived projection, it is advised that there’s a possibility
in rise of stock prices of RELIANCE.
 From the view of investing, it can be said that, one should buy the shares for the
given price so as to earn a greater return in the future when the price will hit the
peak (according to the projection) and so, to sell at the peak price and vice-versa.
Limitations
1. Monte Carlo simulation is not universally accepted in simulating a system that is
not in equilibrium (i.e. in a transient state).
2. The results are only an approximation of the true value.
3. Simulation results can show a large variance.
4. It may be very expensive to build a simulation.
5. It is easy to misuse simulation by stretching it beyond the limits of credibility.
 References
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2016 International Conference on Industrial Engineering and Operations Management Kuala Lumpur, Malaysia, March 8-10, 2016
[2] Ally Invest Advisors Inc. Robo Portfolios Monte Carlo Disclosure v2 – Updated September 15, 2021
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[4] Ayodele Ariyo Adebiyi, Aderemi Oluyinka Adewumi, and Charles Korede Ayo, “Comparison of ARIMA and Artificial NeuralNetworks Models
for Stock Price Prediction,” Journal of Applied Mathematics, Volume 2014 (2014), Article ID 614342, 7
pages.http://dx.doi.org/10.1155/2014/614342
 
[5] G. S. Laddle, and L. Wu, “Development of modified geometric Brownian motion models by using stock price data and basic
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[6] P. Wilmott, “Quantitative Finance,” John Wiley & Son, Ltd, Chichester, (2000)
 
[7] E. Fama, “Random walks in stock market prices,” Financial Analysis Journal, 51, 1-6 (1965)
 
[8] Media Reports, Press Releases, IRDAI, General Insurance Council, Reserve Bank of India, Union Budget 2021-22
 
[9] Financial Services Industry Report https://www.ibef.org/industry/financial-services-india.aspx
[10] www.nesindia.com