About the course

This course consists of two EXCEL files that illustrate the following Variance Reduction procedures, in particular:

• Antithetic Variable Technique
• Quasi – random sequences

These methods have been employed to price a European Call Option.

The “Antithetic Variable Technique” EXCEL example file contains:

• Black Scholes formula for pricing a European Call Option
• Monte Carlo Simulation for pricing a European Call Option using EXCEL’s RAND()
• Monte Carlo Simulation for pricing a European Call Option using 1-RAND()
• Antithetic Variable Technique results for European Call Option price along with mean, standard deviation and standard error for the sample

The “Quasi-random sequence” EXCEL example file contains:

• Black Scholes formula for pricing a European Call Option
• Halton sequence with base 2
• Quasi Monte Carlo method results for European Call Option price along with mean, standard deviation and best & worst estimate of standard error for the sample

Learning Objectives

After taking this course you will be able to:

• Calculate the price of a European call option using the Black Scholes formula
• Calculate the price of a European call option using Monte Carlo simulation
• Use the antithetic variable technique to increase the speed of convergence and improve the accuracy of simulated results
• Use the quasi random sequences to increase the speed of convergence and improve the accuracy of simulated results
• Evaluate and quantify the speed of convergence and error reduction from employing variance reduction techniques

Prerequisites

The candidate should have some familiarity with basic derivative products and their pricing and be comfortable with basic mathematics, statistics, probability and EXCEL. Some prior knowledge of Monte Carlo simulation is also recommended.

Target Audience

The course is aimed at professionals who deal with pricing and valuation of derivative and structure instruments well as individuals responsible for capital allocation, limit setting and risk management within banks, insurance companies, mutual funds, as well as finance departments of non-financial organizations.