The Monte Carlo Simulation in Excel

The Monte Carlo Simulation in Excel

In the previous video, Abdulla explained how Monte Carlo is a way of modelling a probability distribution of returns or prices. In this video, Abdulla examines the nature of stock returns to come up with a formula that can be used in Excel to simulate the price paths.
Overview

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?

Join now to watch

This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.

Summary
logo-animationlogo-animationlogo-animation
Expert
Abdulla Javeri

Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.

Related videos

Interest Rate Basics

Interest Rate Basics

Abdulla Javeri07:58

Join now to watch

This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.