Monte Carlo is a way of modelling a probability distribution of returns or prices. In this particular case, changes in stock prices. This can be calculated by multiplying the spot price today by e to the power of a continuously compounded rate of return (r).
Key learning objectives:
How do we calculate changes in stock prices?
The rate (r) is made up of which two components?
Which formula can we input in excel for our simulations?
Introduction to Options, Pricing and Use Cases
Peter Eisenhardt • 13:18