PriceRangeStateful.ExpectedPrice Method

Evaluates the future expected price of an asset modeled in accordance with the Black-Scholes model.

public double ExpectedPrice();

Return Value

The expected price of the asset at the future point in time in accordance with the Black-Scholes model.

Remarks

Notes:

The future expected price of the assets does not depend on the level of the volatility of the asset.
For any price model for which the dynamic price evolution is symmetric the expected future price will be the same.

Pre-requisites

Before this method is called you must have set the following:

Initial Price - the initial price of the asset for which the future expected price is being evaluated which is set using SetInitialPrice.
Expected Return - the annual expected return of the asset given in decimal format (i.e. 1 percent = 0.01) which is set using either SetExpectedReturn, or one of the methods SetPriceValuesDates, SetPriceValues which uses line regression of historical price data in order to estimate the expected return.
Time - the time in years from the initial point in time when the initial price in measured until the expected price is evaluated which is set using SetTime(double), or SetTime(Date, Date).

Worked Example

Problem Considered

What is the expected price of a stock in six month time in accordance with the Black-Scholes model, when the initial price of the stock on 4th January 2006 is 40 dollars, the expected return is 16 percent per year, with a volatility of 20 percent per year?

Parameters required to be set in order to solve this problem

initialPrice = 40, set using SetInitialPrice.
expectedReturn = 0.16, set using SetExpectedReturn.
startDate = 4/1/2006, set using SetTime(Date, Date).
endDate = 3/7/2006, set using SetTime(Date, Date).

Answer Found

By calling this method using the above parameters you will find that the expected price of the asset at start of 4th July 2006 (i.e. start 4/7/2006) is: 43.3314.