# why does monte carlo simulation become less accurate as volatility increases? [closed]

I simulated sample paths to approximate the price of a vanilla European call and then plotted a graph comparing this to the value achieved from the Black Scholes. Why do these values diverge as the option volatility increases?

• It could be the fact you're doing relatively fewer number of simulations, than what you should. Maybe trying increasing the number of simulations by a factor of 100 or maybe 1000. If the issue still persist, I would be interested to seeing some code to figure out what maybe the issue – user23564 Mar 18 at 19:53
• How does MC work: it takes the average of a large number N of $(S_T-K)^{+}$ values, the more these values are spread out the more difficult it is to estimate their mean from N observations. – noob2 Mar 18 at 20:16
• In addition to what noob2 says, depending on the implementation of the montecarlo, you can also start to introduce biases when vol gets too high - for example if you're operating in spot space rather than log space, then numerically paths can round to zero, which is an absorbing barrier - this will drag down the forward and introduce a bias. – will Mar 19 at 21:34