# Exotic Option Pricing using Monte Carlo Simulation

SKU 00103

$51.00

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#### About the course

This course consists of an EXCEL file calculates option prices for a number of vanilla and exotic options using Monte Carlo Simulation as follows:

- Vanilla European Call and Put options are priced for model calibration and tweaking
- Out of Money Call and Put options are priced to compared cost savings between vanilla and exotic option contracts
- Asian Call and Put options that replace the terminal price with the average of prices across the simulated path,
- Look-back Call option are priced to simulate maximum pays
- Barrier or Sudden Death Call option which has both in and out barriers above and below the strike,
- Ladder Call option with two rungs (high water marks) in addition to the original strike, and
- Chooser options which allow the owner to choose between a 9-month call or put option three months down the line.

The methodology followed in the EXCEL file is:

- A Monte Carlo simulator is use to generate a path of monthly prices for a one year period. For the chooser option, the Black Scholes option pricing formula is used together with the simulated price of the 3rd month, to estimate the price of a 9-month call/ put option.
- An antithetic price series is also generated for each simulation to increase the speed of convergence
- Payoffs and discount values for each option are determined for both the regular and antithetic MC simulated prices
- Values (both regular and antithetic) are stored in a data table containing 500 simulated runs
- Average premiums across all runs are calculated for both regular and antithetic scenarios
- The average between the regular and antithetic average premiums is taken to arrive at the simulated price of the option

#### Learning Objectives

After taking this course you will be able to:

- Build a Monte Carlo simulator to generate a path of monthly prices
- Determine antithetic price series to increase the speed of convergence to results
- Calculate the price of vanilla European call and put options
- Calculate the price of out of money call and out options
- Calculate the price of Asian call and put options
- Calculate the price of look-back call option
- Calculate the price of barrier options
- Calculate the price of chooser options

#### Prerequisites

The candidate should be familiar with basic derivative products and their pricing, having and understanding of Monte Carlo Simulation & be comfortable with basic mathematics, statistics, probability and EXCEL.

#### Target Audience

The course is aimed at professionals who deal with pricing, valuation and risk issues related to structured fixed income and foreign exchange transactions.

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