Tagged Questions
4
votes
2answers
147 views
Is drift rate the same as interest rate in risk-neutral random walk when using Monte Carlo for option pricing?
When using following risk-neutral random walk
$$\delta S = rS \delta t + \sigma S \sqrt{\delta t} \phi$$
where $\phi \sim N(0,1)$.
Now when a text mentions drift = 5% does that mean that interest ...
6
votes
0answers
119 views
Consistency of economic scenarios in nested stochastics simulation
I am interested in references on research regarding the consistency of economic scenarios in nested stochastics for risk measurement.
Background:
Pricing by Monte-Carlo:
For pricing complex ...
6
votes
2answers
341 views
How to transform process to risk-neutral measure for Monte Carlo option pricing?
I am trying to price an option using the Monte Carlo method, and I have the price process simulations as an inputs. The underlying is a forward contract, so at all times the mean of the simulations is ...
