




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


 