# Questions tagged [simulations]

The tag has no usage guidance.

186 questions
Filter by
Sorted by
Tagged with
56k views

780 views

### Is Walk Forward Analysis a good method to estimate the edge of a trading system?

Do you think Walk Forward Analysis is a good method to estimate the predictability or edge of a trading system? Are there similar methods to know (estimate) how much alpha can capture an algo (in the ...
317 views

### Are there any standard techniques for adding realistic synthetic microstructure noise to a price series?

This may seem like a strange question, but for my particular application we need to actually add synthetic microstructure noise to real time charts. The signal should still be representative of the ...
7k views

### When to use Monte Carlo simulation over analytical methods for options pricing?

I've been using Monte Carlo simulation (MC) for pricing vanilla options with non-lognormal underlyings returns. I'm tempted to start using MC as my primary option-valuating technique as I can get ...
3k views

### How to simulate cointegrated prices

Is there any simple way to simulate cointegrated prices?
722 views

### How to test for and how to simulate price rise/fall asymmetry in the stock market

One of the stylized facts of financial time series seems to be a fundamental asymmetry between smooth upward movements over longer periods of time followed by abrupt declines over relatively shorter ...
5k views

2k views

### When to use the real world drift and when the risk neutral one for a Monte-Carlo simulation?

Under what conditions should the drift be real world and when risk neutral when simulating Delta Hedging option pricing trading strategy any other? For 2. it should be risk neutral. For 1., it ...
5k views

### Monte Carlo simulating Cox-Ingersoll-Ross process

The CIR process is given by the SDE $$\mathrm dr_t = \theta(\mu-r_t)\mathrm dt + \sigma\sqrt{r_t}\mathrm dW_t$$ where $W_t$ is a Brownian motion. I am interested in finite-difference schemes of ...
432 views

### Simulating from a multivariate clayton copula

I am recently into copulas for finance, I've read several examples of how to generate dependent random variables with most kind of copulas. The problem for me is that all the books describe the case ...
7k views

### How to simulate a Merton Jump Diffusion process?

I am talking about the Merton Jump Diffusion model, on this page, where they give the following formula: $$dS_t = \mu S_t dt + \sigma S_t dW_t + (\eta-1) dq$$ where $W_t$ is a standard brownian ...
3k views

I have a time series of daily data that I want to calibrate GBM parameters $\mu$ and $\sigma$ to. Using the discretized solution $$S_{t_{i+1}} = S_{t_i}\exp\left(\left(\mu - \frac{\sigma^2}{2}\... 1answer 4k views ### Michaud's Resampled Efficient Frontier - Out of Sample Simulation Testing I will be putting ALL my account points on bounty to whoever answers this question [if your answer is crap but it's the only answer, you're getting the 165 points]. You will have to wait 2 days or so ... 1answer 365 views ### Simulate (imaginary) asset prices using random numbers that follow a Frank Copula I didn't understand how to simulate asset prices by using non normal random numbers. I am assuming that it would be incorrect to use the standard Geometric Brownian Motion, since it is based solely ... 1answer 1k views ### How does the 2-factor Hull White model propagate the forward rates curve? I've been trying to get a grasp on some of the basics of interest rate modeling, and am looking to simulate rates using the 2 factor Hull White model, which I am aware offers a more realistic model of ... 1answer 188 views ### Simulate double exponential process with correlated jumps? So, I'm trying to simulate a correlated double exponential jump process for two assets, and I understand the pure exponential jump process (\eta_1 and \eta_2, the probability of an upward jump ... 1answer 793 views ### Kelly Capital Growth Investment Strategy (Example in R) In the paper Response to Paul A Samuelson letters and papers onthe Kelly Capital Growth Investment Strategy pages 5 and 6 Dr William T Ziemba, gives a praticle example on Kelly Growth. I’m trying to ... 2answers 558 views ### Credit Valuation Adjustment Implementation I am trying to help a friend with her thesis on Counterparty Credit Risk where she intends to have a somewhat lengthy treatment on Credit Valuation Adjustment (CVA). Specifically I am looking to help ... 1answer 581 views ### Extended CIR and discretization Did someone know how to discretize this process efficiently : dX(t) = \kappa [\theta(t)-X(t)]dt + \sigma \sqrt{X(t)}dW(t) I am looking for something more sophisticated than the trivial Euler ... 2answers 237 views ### Random Brownian Simulation Startling Results I was playing around in Excel the other day, simulating possible equity curve/P&L paths for a simple game I designed. The game is really trying to find an optimal risk managment strategy. I start ... 1answer 307 views ### How to model High/Low prices for Stocks with Monte Carlo I'm using monte carlo simulation to model stock paths and measure risk, but I was wondering if there is a way to simulate the full bar/candle chart with open, high, low and close prices , as I'm only ... 1answer 2k views ### Monte Carlo - Multivariate Simulation of Returns I am implementing a Monte Carlo simulation in R to generate multivariate correlated returns. In doing this I have used the Cholesky decomposition, applied to the covariance matrix. However, I saw that ... 1answer 2k views ### Simulating returns from ARMA(1,0)-GARCH(1,1) model I want to obtain a simulation of one-step ahead forecasts of stock returns process governed by ARMA(1,0)-GARCH(1,1) process. The returns are of form: x_t = \mu + \delta x_{t-1} + \sigma_t z_t From ... 2answers 1k views ### Geometric Brownian Motion - increasing simulations or smaller step size I am running Monte Carlo simulations to estimate future share prices of some stocks. For stock A, I need 1 share price exactly one year from now. For stock B, I need daily prices for each trading ... 1answer 3k views ### Valuing Total Return Swaps In my quest for simulated data, I am trying to generate prices for Total Return Swaps by calculating the NPVs of the fixed and floating leg. My problem: Given the fixed leg, how do I set the spread on ... 1answer 706 views ### Model reference price of Limit order book first of all, the description of this Stackexchange forum says its for professionals or academics. I'm doing a lot of self studying and with that I was able to understand some white papers but still I'... 2answers 618 views ### Monte Carlo, convexity and Risk-Neutral ZCB Pricing I've built a simplistic Excel monte carlo model to price a zero-coupon bond, but it came up with a slightly unepxected result so I wanted to confirm whether my maths is just a little rusty or my model ... 0answers 121 views ### How does one simulate intraday strategies which don't end up flat at the close? I ran into this trying to simulate trading interlisted names between the NYSE and the TSX. Depending on my strategy parametrization it would sometimes end up with a significant short or long dollar ... 1answer 1k views ### How are Brownian Bridges used in derivatives pricing in practice? A similar question has already been asked in the past, unfortunately the 2nd question of the OP was never really addressed. Most references found on internet on Brownian Bridge and Monte-Carlo ... 1answer 381 views ### Pricing a log-contract using Monte Carlo Having a payoff of log-contract defined as$$ \Pi_T = \ln \left(\frac{S_T}{S_0} \right)  How would you express the MC-estimator for the price of this contract? The stock price dynamics here is ...
I'm following loosely the exposition given in "Monte Carlo Methods in Financial Engineering by Glasserman. For a multifactor OU process: $dX(t)=C(b-X(t))dt+DdW(t)$ Where C and D are d*d matrices ...