Monte Carlo simulation methods are a broad class of computational algorithms that rely on repeated random sampling to obtain numerical results.

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Sanity check - How to price callables

This question is meant as a sanity check whether i got the workflow right for pricing callable bonds. If anyone finds a mistake, or has a suggestion, please answer. The workflow is: For every call ...
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352 views

Simulating the joint dynamics of a stock and an option

I want to know the joint dynamics of a stock and it's option for a finite number of moments between now and $T$ the expiration date of the option for a number of possible paths. Let $r_{\mathrm{s}}$ ...
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How to minimize the difference between a parametric VaR and a MC-VaR with lognormal assumption?

Given that we want to find the Value at Risk for a portfolio of stocks only, there are two main methods to proceed. In the problem, we also assume that stocks follow a geometric Brownian motion. A ...
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Should we apply practical constraints on the distribution of monte carlo paths?

to limit interest rate paths to a 'reasonable' range (if we could define reasonable). Now we calibrate log-normal skew and mean reversion monthly to robust basket of atm swaptions and in and out ...
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139 views

Simulating property price index

I am trying to write a Monte Carlo simulation to calculate risk associated with some property based products. What is the most reasonable stochastic process to model property price index? Do people ...
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604 views

Simulating conditional expectations

There is a multidimensional process X defined via its SDE (we can assume that its a diffusion type process), and lets define another process by $g_t = E[G(X_T)|X_t]$ for $t\leq T$. I would like to ...
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633 views

How to apply quasi-Monte Carlo to path-dependent options?

Following up on my recent question on variance reduction in a Cox-Ingersoll-Ross Monte Carlo simulation, I would like to learn more about using a quasi-random sequence, such as Sobol or Niederreiter, ...
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357 views

How to reduce variance in a Cox-Ingersoll-Ross Monte Carlo simulation?

I am working out a numerical integral for option pricing in which I'm simulating an interest rate process using a Cox-Ingersoll-Ross process. Each step in my Monte Carlo generated path is a ...
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651 views

Monte carlo portfolio risk simulation

My objective is to show the distribution of a portfolio's expected utilities via random sampling. The utility function has two random components. The first component is an expected return vector ...
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Reference on Markov chain Monte Carlo method for option pricing?

I have to implement option pricing in c++ using Markov chain Monte Carlo. Is there some paper which describes this in detail so that I can learn from there and implement?
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Is there any research on applying state-space or dynamic linear models to forecasting equity risk premia?

Is there any research on applying state-space or dynamic linear models to forecasting equity risk premia on a security-by-security basis with a medium term horizon (say 3 month to 12 months horizon)? ...
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Black Scholes and Monte Carlo implementations in Java [duplicate]

Possible Duplicate: Is there an all Java options-pricing library (preferably open source) besides jquantlib? Can anyone recommend a library with an implementation of Black Scholes and Monte ...
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How useful is Markov chain Monte Carlo for quantitative finance?

Naively, it seems that Bayesian modeling, structural models particularly, would be quite useful in finance because of their ability to incorporate market idiosyncrasies and produce accurate ...
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Portfolio optimization with monte carlo sampling from predictive distribution

Let's say we have a predictive distribution of expected returns for N assets. The distribution is not normal. We can interpret the dispersion in the distribution as reflection of our uncertainty (or ...
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How do I estimate convergence in monte carlo methods?

I am experimenting with Monte Carlo methods. I'd like to measure/estimate convergence with a graph/chart. How do I do that? Can anyone please direct me to relevant documentation/links or even give me ...
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318 views

Divergence issue with my monte carlo pricer…

I am trying to implement a vanilla European option pricer with Monte Carlo and compare its result to the BS analytical formula's result. I noticed that as I increase (from 1 million to 10 millions) ...
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Vanilla European options: Monte carlo vs BS formula

I have implemented a monte carlo simulation for a plain vanilla European Option and I am trying to compare it to the analytical result obtained from the BS formula. Assuming my monte carlo pricer is ...
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2k views

Mersenne twister random number generator in Java for Monte Carlo Sim.

I am using the Mersenne twister random number generator in Java for a Monte Carlo Simulation. I need a uniform distribution of values between -1 and 1. My code is below (I am importing ...
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220 views

Picking from two correlated distributions

Can anyone provide a simple example of picking from two distributions, such that the two generated time series give a specified value of Pearson's correlation coefficient? I would like to do this in ...
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969 views

Simple model for option premium (for covered call simulation)?

Given a historical distribution of weekly prices and price changes for a stock, how can I estimate the the option premium for a nearly at-the-money (ATM) option, say with an expiration date 3 months ...