DER 04.3 Option valuation: Monte Carlo simulation

Some options are written on the prices of more than one asset. Most of them do not have analytical valuation formula. Nonetheless, they can be valued accurately using approximations. The most versatile of these is Monte Carlo simulation.

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• Required reading

  • Whaley, 2006, Ch. 9, Valuing options numerically (pp. 328-337)

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• Lecture notes

  • Slides

  • Supporting files​

    • NPV simulation.xlsx

    • Reconcile asset price-return parameters.xlsx

    • Option valuation.xlsx

    • Spread option valuation.xlsx

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