




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


 