Submitted by: Submitted by yj161
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Words: 1314
Pages: 6
Category: Science and Technology
Date Submitted: 10/07/2013 12:27 PM
Simulation
Project
Pricing
and
Hedging
with
Monte
Carlo
Simulation
Yun
Jin
149000585
Abstract:
This
paper
attempts
to
implement
Monte
Carlo
simulations
in
order
to
price
and
hedge
options.
Many
options
have
no
analytic
solutions.
Given
the
strong
assumptions
of
the
Black-‐Scholes
world,
after
a
review
of
the
literature,
we
analyze
via
simulations
the
impact
of
stochastic
volatility
on
the
valuation
of
Asian
and
European
options;
next
we
examine
how
the
various
hedge
weights
perform
in
the
case
of
a
European
call
on
a
basic
Black-‐Scholes
asset.
1
Pricing
options:
a
simulation
approach
My
pricing
method
approach
is
based
on
Monte
Carlo
simulation;
firstly
I
provide
the
central
assumptions
of
the
Black-‐Scholes
environment.
Then
detail
the
Monte
Carlo
simulation
to
pricing
options.
The
Monte
Carlo
approach
is
an
efficient
application
of
the
option
pricing
theory
as
summarized
as
followings:
firstly
simulating
a
path
of
the
underlying
asset
under
the
risk
neutrality
condition
,
then
we
need
to
discount
the
payoff
corresponding
to
the
path
at
the
risk-‐free
interest
rate,
after
repeating
the...