The distribution of the daily price changes of a security can be modeled as randomly sampled from a probability distribution.
This notebook imagines a possible path for SP500 into the future by fitting a Normal Distribution to the change in daily prices and iteratively sampling. Note that every run will give a different projection.
A look at the data shows that Normal distribution can be a good starting point for this investigation despite its weaknesses.
This model makes unrealistic assumptions not limited to:
- Annual price changes are i.i.d.
- Returns stay the same long-term.
- The underlying distribution is normal.
MIT License