Simulation

Clifford S. Ang
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Clifford S. Ang: Compass Lexecon

Chapter Chapter 11 in Analyzing Financial Data and Implementing Financial Models Using R, 2021, pp 363-390 from Springer

Abstract: Abstract Many asset pricing problems cannot be solved using closed-form formulas like the Black–Scholes–Merton model. This chapter discusses the application of simulation techniques in finance. We show different ways to model stock prices using a Geometric Brownian Motion, including simulating two correlated assets. We also show how simulations can be used in the Value-at-Risk calculation. We then show how simulations can be used in options pricing, including how to price several exotic options.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-030-64155-9_11

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DOI: 10.1007/978-3-030-64155-9_11

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