Overview - 2023.2 English

Vitis Libraries

Release Date
2023-12-20
Version
2023.2 English

The essence of Monte Carlo Method is the law of large numbers. It uses statistics sampling to approximate the expectation.

It simulates the stochastic process of value of underlying asset. When using Monte Carlo to price the option, the simulation generates a large amount of price paths for underlying asset and then calculates the payoff based on the associated exercise style. These payoff values are averaged and discounted to today. The result is the value to the option today.

Most of the time, the value of underlying asset are affected by multiple factors, and it don’t have a theoretical analytic solution. For this scenario, Monte Carlo Methods are very suitable.