




Monte Carlo methods are numerical techniques used for solving complex mathematical problems. Monte Carlo methods become more efficient relative to other approaches as problem complexity increases. Monte Carlo methods were first used in physics from the first days of electronic computers. Today Monte Carlo methods are used extensively in quantitative finance, such as in valuation of complex derivative securities. For example, Asian options that do not have easy solutions via a Black Scholes type model are generally priced via Monte Carlo option pricing techniques. The Monte Carlo approach involves estimating a result based on averaging numerous trials. For each Monte Carlo trial, random or pseudorandom data are used. In addition to valuation problems, Monte Carlo methods are good for complex optimization problems. The Monte Carlo method was named after the famous Monte Carlo casino in Monaco.
Rate this Monte Carlo definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: diluted share, phantom income, labor relations, liquidity ratio, APR, per diem, exdividend date, exdividend, inflation, FICO score, option premium, average price per share, cancelled check, VIX, deferred revenue, covered put, class C shares, quality assurance, irrevocable trust, command economy, in escrow, whollyowned subsidiary, retained earnings, debt service coverage, balance sheet, real GDP, required rate of return, 1031 exchange, minority interest, dividends payable, EBITDA, deferred tax, risk management, Key Rate Duration, 144a, annual return, implied volatility, limit order, LIBOR, 1035 exchange, margin rate, stock split, open position, 401a, reverse mortgage, current ratio, Zero Cost Collar, FTSE, stock market close


 