Abstract
This expository article highlights the significance of Monte Carlo simulation in pricing of options. We discuss the various types of financial derivatives, particularly options and their classifications. The discrete and continuous time models for the underlying assets are dwelled upon. We consider a geometric Brownian motion (GBM) based model for stock price process and discuss the payoffs of plain vanilla as well as path-dependent European-type options, namely, barrier, lookback, and Asian. We mention the option pricing formula for plain vanilla European option and describe the Monte Carlo approach to option pricing with illustrative algorithms and results for some of these options.
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© 2015 Springer Science+Business Media Singapore
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Chakrabarty, S.P. (2015). Pricing of Path-Dependent European-Type Options Using Monte Carlo Simulation. In: Siddiqi, A., Manchanda, P., Bhardwaj, R. (eds) Mathematical Models, Methods and Applications. Industrial and Applied Mathematics. Springer, Singapore. https://doi.org/10.1007/978-981-287-973-8_6
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DOI: https://doi.org/10.1007/978-981-287-973-8_6
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