Monte Carlo methods in finance: an introductory tutorial

  • Authors:

  • Sandeep Juneja

  • Affiliations:

  • Tata Institute of Fundamental Research, Mumbai, India

  • Venue:
  • Proceedings of the Winter Simulation Conference
  • Year:
  • 2010

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Abstract

In this introductory tutorial we discuss the problem of pricing financial derivatives, the key application of Monte Carlo in finance. We review the mathematics that uses no-arbitrage principle to price derivatives and expresses derivatives price as an expectation under the equivalent martingale measure. In the presentation at the conference we will also elaborate on the use of Monte Carlo methods for pricing American options and in portfolio risk measurement.