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?
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Introduction to Options, Pricing and Use Cases
Peter Eisenhardt • 13:18