Monte Carlo Simulation and Finance

"The advanced theory of finance, like many other areas in which complex mathematics plays an important part, is undergoing a revolution aided by the computer and the proliferation of powerful simulation and symbolic mathematical tools. This is the mathematical equivalent of the invention of the printing press. The numerical and computational power once reserved for the most highly trained mathematicians, scientists, and engineers is now available to any competent programmer. " —From Chapter 1 Monte Carlo simulation methods are among the most powerful and broadly applicable tools available for valuing derivatives and other financial securities. Recent exponential increases in the power and speed of computers have greatly expanded the scope, efficiency, and accuracy of Monte Carlo simulations, leading to the need for a comprehensive and thoroughly updated reference on the use of Monte Carlo techniques for financial engineering and modeling. Monte Carlo Simulation and Finance provides financial engineers, researchers, and students with today's most detailed and application-based examination of Monte Carlo modeling techniques. Filled with valuable insights and methodologies for formulating the problem at hand; setting specific objectives; choosing and implementing the most applicable model; determining parameters; running the simulation; and documenting results and conclusions in light of the simulation results, the book features: Techniques for using performance measures to calibrate a simulation model Methodologies for addressing survivorship bias Variance reduction in simulation Importance sampling and pricing exotic options, including Asian options and Barrier options Pricing options under alternative, more realistic models Quasi–Monte Carlo multiple integration methods, which often generate estimates superior to traditional Monte Carlo methods Examples of van der Corput, Halton, Faure, and Sobol low-discrepancy sequences Chapter-ending problems that both test newly acquired knowledge and suggest avenues for further exploration An insightful discussion of the future of Monte Carlo financial simulation Monte Carlo Simulation and Finance is an essential reference for anyone, professional or academic, looking to design and implement accurate models for securities pricing and risk management. Further theoretical and mathematical information supporting theconcepts discussed throughout this book also appear in an online appendix at www.wiley.com/go/mcleish. Today's most up-to-date and results-based guide to this vital area, Monte Carlo Simulation and Finance is certain to set the standard for Monte Carlo reference texts throughout the remainder of this decade.