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Mathematical Finance: Option Pricing using Monte Carlo Simulators

In addition to the Black Scholes Equation and binomial trees another important tool in option pricing is Monte Carlo Simulation. A Monte Carlo Simulator in Excel uses the inbuilt Random function in excel to model uncertainty. The Monte Carlo (MC) Simulator uses standardized mathematical finance equations to simulate the price of an equity, a currency, an exchange rate or a commodity. The prices are then used to calculate payoffs and the payoffs are sampled and averaged over a large enough pool to estimate simulated prices.

Here are introductory course on Monte Carlo Simulation. In addition to option pricing we will also use the same tool in interest rate simulations and multiple other financial simulators to be used later on in our mathematical finance curriculum.

Option Pricing in Excel using Monte Carlo Simulation Quick Reference Guide

Risk & Treasury Case Studies