Stochastic calculus and derivatives pricing in the  Nigerian stock market

Urama, Thomas Chinwe

doi:10.7190/shu-thesis-00108

Cited by 2 publications

(1 citation statement)

References 143 publications

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“…These 16 sub-sectors of the UK economy can be subjected to detailed SSMCD analyses which can be pieced together to reveal the character of UK SSMCD econome. Similarly, the Nigerian financial system is composed of 189 companies in equities, 2 listed Exchange Traded Funds, and 55 listed bond (fixed-income) instruments; these are not listed here to save space, see[5], p.15. Hence, SSMCD work entails characterising equity, bonds, commodity, and real estate assets and sectors in an economy, including hybrid markets, with the goal of constructing…”

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confidence: 99%

Systematic Stock Market Characterisation and Development: Perspectives from Random Matrix Theory, Option Pricing, Genetics, and Global Economics

Ezepue¹,

Urama²,

Omar³

2019

JMF

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We explicate the need and pathways for systematic stock market characterisation and development (SSMCD) and the role of Random Matrix Theory (RMT) in SSMCD research. This is the first time SSMCD, itself a nascent area of empirical finance introduced by the first author, is linked to RMT. Our focus is on the Nigerian Stock Market, particularly using RMT techniques to correlate respective asset prices in the NSM. The resulting insights are combined with those from related works on stochastic-times series analyses of stylised facts and six main market issues typically explored in empirical finance (efficiency, bubbles, anomalies, volatility, valuation and predictability), to illustrate SSMCD pathways in the NSM. Specifically, the RMT analyses focus on the cross-correlation matrix C of the stock index returns in the Nigerian Stock Market (NSM) from the period 2009 to 2013. Within this purview, we test the eigenvalues of the selected assets from the NSM and use their respective eigenvectors and inverse participation ratios to determine the stocks that drive the market dynamics. A method of obtaining a realistic implied correlation matrix for a hypothetical portfolio of some given assets selected from those considered in the empirical correlation matrix of the assets is considered. The positive implied correlation matrix shows that the corresponding assets in the NSM move in the same direction, meaning that portfolio diversification is not an optimal investment strategy. Hence, investing on derivative assets like call and put options is recommended. Further SSMCD implications of the analyses are foreshadowed. Also, we develop the links among How to cite this paper:

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Systematic Stock Market Characterisation and Development: Perspectives from Random Matrix Theory, Option Pricing, Genetics, and Global Economics

Ezepue¹,

Urama²,

Omar³

2019

JMF

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Random Matrix Approach for Analysis of the Johannesburg Stock Exchange

Zourmba,

Claver,

Audrey

et al. 2024

Advances in Computational Intelligence and Robotics

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Random Matrix Theory gives us the theatrical framework to analyze computational and statistical properties of cross-correlation matrix. Usually, the cross-correlation matrix is noisy because of the estimation's error for the length and the finite nature of the underlying time series. The present work studies the Johannesburg Stock Market and the effects of eigenvalues filtering techniques on portfolio optimization in the mean-variance framework. The data stock prices are scraped on the Yahoo Financial website from 1st January 2020 to 1st January 2024. Further, we applied the LCPB, PG+, and KR cleaning techniques and observed that the predicted risk was closer to the realized risk in the prediction period. We conclude that the KR method is the best technique. In addition, the Johannesburg Stock Exchange reacts more to bad events than to good ones. This result considerably improves the constructive approach often used by practitioners in this market.

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Stochastic calculus and derivatives pricing in the Nigerian stock market

Cited by 2 publications

References 143 publications

Systematic Stock Market Characterisation and Development: Perspectives from Random Matrix Theory, Option Pricing, Genetics, and Global Economics

Systematic Stock Market Characterisation and Development: Perspectives from Random Matrix Theory, Option Pricing, Genetics, and Global Economics

Random Matrix Approach for Analysis of the Johannesburg Stock Exchange

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