Evaluation of Options using the Monte Carlo Method and the Entropy of Information

Vasile Brä‚tian
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Vasile Brä‚tian: Lucian Blaga University Sibiu, Romania

Expert Journal of Economics, 2018, vol. 6, issue 2, 35-43

Abstract: In the present paper, there are presented, theoretical and applicative, two issues: the evaluation of the European options using the Monte Carlo method and the measurement of the entropy of information for the price of the underlying asset of the option. The underlying asset used in our analyses is the share of Compa SA. Through Monte Carlo simulations, scenarios are created on the random evolution of the underlying asset, and the valuation of the option on the underlying asset is made using the Feynman-KaÄ theorem. The distribution we use is lognormal. Also, in the paper is measured the entropy of information of Shannon type. The measurement of the entropy of information of the stock market price of the underlying asset is calculated annually, considering the stock market price in this case as a discreet random variable.

JEL-codes: C02 C15 G13 (search for similar items in EconPapers)
Date: 2018
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