Pricing of financial derivatives via simulation

Authors:
Michael C. Fu
Affiliations:
College of Business and Management, Institute for Systems Research, University of Maryland at College Park, College Park, Maryland
Venue:
WSC '95 Proceedings of the 27th conference on Winter simulation
Year:
1995

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Abstract

The word "derivative" has led a ubiquitous existence in the news in recent years. This paper gives a tutorial on financial derivatives and the use of Monte Carlo simulation techniques for their pricing. We provide the basic financial terminology and key concepts in the field, focusing on options pricing, in particular. Although no prior knowledge of finance is assumed in the exposition, previous experience with stochastic simulations-generation of random inputs and basic statistical output analysis-is requisite.