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Introduction

Name: Tom Forward Year: 2010 Chapter 1: Introduction A main factor that plays a big part in the price of a stock or shares is the economy, the economy was doing really well up until 2008 when the recession started, this caused share prices to drop dramatically and businesses having to close down. Customers began to spend less, this affected most companies as it caused a downturn in the economy. Investment levels dropped and businesses did not perform to the same standard. Investment became riskier as banks started to collapse, some even going bankrupt causing businesses to close down too. The recession in the past years (which is still ongoing) has led to fewer people investing and share prices decreasing. Due to this risk management has become important when investing. 1.1 Equity Stocks are also known as equities or shares. An equity is when a stock or share is bought either privately or within a company, this can sometimes be risky because if the company does well in terms of valuation of the equity then the stock or shares bought would have been a good investment to the buyer and profit could be made, but if the company does badly, then the net worth of the stock or shares held is less than what its initial value was and a loss could be made through the returns generated. Risk measures need to be considered when investing in equities to avoid potential losses. 1.2 Aim of the project The aim of this project is to gain an understanding of the Monte Carlo simulation method (Value-at-Risk measure) and to create a user-friendly piece of software that will allow investors to determine the potential risk a chosen stock has. Geometric Brownian motion will be used to simulate the behaviour of stock prices using historical price data; the data used will be three years worth of daily share prices collected from DataStream. . read more.

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There will be two test tables in this chapter, one table will consist of the functionality of the software and the other the validations of the software. Functionality of the software will test all command buttons, option buttons and text boxes, making sure that outputs are outputted into the correct places and into the correct text boxes. The validation testing will ensure that all validations are working perfectly and the users input will be managed via error messages if inputs are not done precisely. The purpose of testing and what the outcome should be and whether it has been successful will be shown in tables throughout this chapter. Each test will be individually illustrated using screen shots from the software while it is being run. 5.2 Functionality test table Test number Purpose of test Expected outcome Successful? 1 To check if the user manual opens from user form 1 (welcome) once the ‘User Guide’ button has been clicked. The user manual should open as an MS word document. Yes 2 To check if the software closes once the ‘Exit’ command button in user form 1 and 6 has been clicked. A message box should appear asking the user if they are sure to quit the software, If ‘Yes’ is selected then another message box should appear just before the software does close. If ‘No’ is selected the user will be returned to the user form. Yes 3 To check to see if user form 2 opens once ‘Start’ command button in user form 1 has been clicked. User form 1 called ‘Welcome’ should hide and user form 2 called ‘CompSelect’ should show. Yes 4 To check to see that only one company can be selected in user form 2 (CompSelect). User form 2 will have a list box consisting of thirty different companies and only one can be selected. Yes 5 To check to see that ‘Show selected company’ command button outputs the selected company and its attributes. . read more.

GBM was coded in VBA and outputted into Excel to create a graph which was then outputted into a user form through VBA. Having said that not most of the functions in VBA were easy to implement, problems did arise therefore research had to be done in order to learn more and produce what was needed and getting the software to work properly. The aims of the project have been met seeing that a user friendly software has been created in order to estimate future stock prices and calculate its V-a-R. Testing of the software has been successful with no errors and complications, results obtained have been appropriate easy to understand and can be based on real life financial situations. From the initial design stage to the completion of the project there have been ups and downs throughout but with great motivation and support this has been a successful project! Chapter 9: User Manual Introduction This manual will guide the user through the software; each step will be illustrated and labelled, each label being explained. The main purpose of the software is to calculate stock prices using Geometric Brownian Motion, measuring its risk by V-a-R. Before proceeding further the following requirements are needed; an operating system of Windows XP or newer and the software needed is Microsoft office 2007 (Excel). The software will need to be opened directly from the CD-Rom and not from a copied version on the system. If the above are available to the user then it is time to get started! Open the program from the CD-Rom into Microsoft Excel, ensure all security checks are in place, and enable macros. This will ensure that all functions will run accordingly. To enable macros click the ‘Office button’, this will be located on the top left hand corner of the Excel window, then go to ‘Excel options’ > ‘Trust center’ > ‘Trust center settings’ > ‘Enable all macros’. Once all of the above are done and available to the user, the user can get started with using the software. . read more.

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