An empirical assessment of asset value function for capital market price changes

Abstract

The stochastic analysis on the valuation of asset value function was examined in this paper; where multiplicative inverse effects, additive effects, additive inverse effects and multiplicative effects were used extensively in the model to obtain stock rate of returns. The problem was solved analytical by adopting Ito’s theorem which the analytical closed form solution showed: (i) increase in stock market prices, increases the assets values. (ii) a multiplicative inverse stock return is the best in terms of precision and decision making. (iii) a little increase in stock volatility also increases the value of asset.(iv) additive inverse effects has the highest rate of returns throughout the trading days which informs an investors on proper way based on decision making. To this end, the validity of analytical solutions was clearly confirmed using empirical stock prices.