Question
After simulating many paths in Monte Carlo, how is the result typically used?
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Answer
Average payoffs for value; examine dispersion for risk.
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Question
How do continuously compounded returns relate to the distribution of asset prices?
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Answer
If log returns are normal, prices are lognormal.
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Question
Why can Monte Carlo simulation model hypothetical future scenarios more easily than bootstrap?
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Answer
It draws from a specified model, not just past observations.
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Question
What are common finance applications of Monte Carlo simulation?
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Answer
Option pricing, VaR, stress testing, and retirement planning.
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