Monte Carlo simulation methods uses repeated random experiments to determine results.
14
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1answer
693 views
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 ...
6
votes
1answer
245 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 ...
10
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5answers
693 views
Monte carlo methods for vanilla european options and Ito's lemma.
I understand that by applying Ito's lemma to the following SDE
$$dX=\mu\,X\,dt+\sigma\,X\,dW$$
one obtains a solution to the above SDE which is as follows:
$${X}\left( t\right) =\mathrm{X}\left( ...
4
votes
1answer
344 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, ...
6
votes
2answers
398 views
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 ...
4
votes
1answer
215 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) ...
