




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


 