Monte Carlo Valuation of an Option

Requires a Wolfram Notebook System

Interact on desktop, mobile and cloud with the free Wolfram CDF Player or other Wolfram Language products.

Requires a Wolfram Notebook System

Edit on desktop, mobile and cloud with any Wolfram Language product.

Perspective: The call option price is shown as a function of the strike price. The black line comes from the Black-Scholes theory while the red bar (95% confidence band) is a Monte Carlo estimate. The controls are the number of Monte Carlo price paths and the tenor of the option in weeks.

[more]

Detail: The distributions of the stock price and the final option payoff are shown. Note that a relatively high percentage of price paths leads to an "out of the money" finish for the option.

[less]

Contributed by: N. T. Gladd (March 2011)
Open content licensed under CC BY-NC-SA


Snapshots