The Monte Carlo Framework and Financial Applications
نویسنده
چکیده
In these notes we describe the general Monte-Carlo framework for estimating expectations. We also give several applications from finance and describe how to simulate correlated normal random variables using the Cholesky decomposition of the covariance matrix. The ability to generate correlated normal random variables finds applications throughout finance. These applications include simulating correlated geometric Brownian motions, multi-dimensional stochastic differential equations and many credit and / or risk models. We will briefly discuss the simulation of dependent random variables but this topic is best studied in the context of copulas which we will not cover in this course.
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