Monte Carlo Simulation of Stochastic Processes
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چکیده
For all cases I present both simulations the risk-neutral and the real one. Risk-neutral simulations are used for derivatives pricing, whereas real simulations are used in other applications like: (a) value at risk; (b) hedging; and, (c) in some real options applications, e.g., to find out the option exercise probability and the waiting expected time before the option exercise (see the Timing spreadsheet). See the FAQ 4 for a discussion of risk-neutral versus real simulations.
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