Category:Monte Carlo simulation

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A Monte Carlo simulation is an algorithm commonly used to obtain estimations of the expectation of a random variable. It is widely used in quantitative finance to estimate the payoff of an option.

The principal is very simple:

  1. simulate a lot of realizations of the random variable;
  2. the empirical mean is a good estimator of the expectation of the random variable.

The difficult points are:

External links

  • The en.wikipedia article about the Monte Carlo method.
  • An algorithm for computing the inverse normal cumulative distribution function, by Peter J. Acklam.

Articles in category "Monte Carlo simulation"

There are 2 articles in this category.