MODELING OF RETURN ON STOCK PRICE VOLATILITY AND MARKET VOLATILITY [ A CASE STUDY OF ELECTRICITY STOCK AT THE NAIROBI STOCK MARKET]

Abstract.

Financial options, namely stock options are always in which investors can manage the risk level of their portfolios and control the timing of various cash flows. In most basic terms, this class of derivatives consist of agreements to buy or sell financial assets(here shares of stock) at a prescribed time in the future, determining the market value, a prediction of the future stock price return volatility is studied. Mathematical models are therefore employed to most accurately predict the future behavior of stock prices returns volatility.

The owner of a stock has the right but not the obligation to either buy or sell a share of a stock s, at time t for price p.

 

A model for predicting the electricity stock price returns volatility developed and then examine its relationship with the price index return volatility. The model is subsequently applied to forecasting stock price returns volatility. The R-statistical software package is employed to generate the regression results of the data collected.

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