Market Consistency and WMC [19]

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Bullet points include: Task is to estimate the probability-weighted cash-flows. Monte Carlo: randomly pick a large number (N) of simulations of how the future might evolve from a suitable distribution. As N tends to infinity the average present value of the payoff across the simulations tends to the probability-weighted average. May use variance reduction and other techniques to reduce the N needed to get acceptably close to limiting answer

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