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Monte Simulation de Monte Carlo Carlo Simulations

In: Capital Market Finance

Author

Listed:
  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

Monte Carlo simulation is a probabilistic technique used when the probability distribution of the investor’s portfolio value cannot be represented by a closed formula and its empirical distribution hence needs to be simulated. The Monte Carlo methodology relies upon the generation of a large number of random draws from a given probability distribution. We describe in Sect. 26.1 the methodologies to be used to perform such random samplings. We then explain in Sect. 26.2 how to perform Monte Carlo simulation with a single risk factor, before addressing in Sect. 26.3 the simulation with multiple risk factors. Section 26.4 presents some observations regarding the efficiency of the simulation framework and introduces some techniques to improve this efficiency. Section 26.5 proposes a solution to the problem posed by American option pricing.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "Monte Simulation de Monte Carlo Carlo Simulations," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 26, pages 1063-1102, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_26
    DOI: 10.1007/978-3-030-84600-8_26
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