




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


 