APPLICATION OF MONTE CARLO SIMULATION IN THE ASSESSMENT OF EUROPEAN CALL OPTIONS

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SHAHBANDARZADEH HAMID; SALIMIFARD KHODAKARAM; MOGHDANI REZA

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Journal: Interdisciplinary Journal of Management Studies Year:2013 | Volume:6 | Issue:1 Page(s): 7-25

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Information Journal Paper

Title

APPLICATION OF MONTE CARLO SIMULATION IN THE ASSESSMENT OF EUROPEAN CALL OPTIONS

Author(s)

SHAHBANDARZADEH HAMID | SALIMIFARD KHODAKARAM | MOGHDANI REZA | Issue Writer Certificate

Keywords

EUROPEAN CALL OPTIONSQ2

MONTE CARLO SIMULATIONQ2

BLACK-SCHOLES FORMULAQ2

Abstract

In this paper, the pricing of a European call option on the underlying asset is performed by using a Monte Carlo method, one of the powerful simulation methods, where the price development of the asset is simulated and value of the claim is computed in terms of an expected value. The proposed approach, applied in MONTE CARLO SIMULATION, is based on the Black-Scholes equation which generally defined the pricing of EUROPEAN CALL OPTIONS in a dynamic environment. Therefore, the main goal of this study is how can Monte Carlo be applied to finance? Although it is stated that because of being based on randomness, the Monte Carlo method has its obvious disadvantages and does not yield solutions for all possible stock prices, by applying BLACK-SCHOLES FORMULA, it is efficient to use this method for calculating payoff. Hence, in the matter of this paper, we introduce the Black-Scholes model and MONTE CARLO SIMULATIONs as main tools to determine.

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APA: Copy

SHAHBANDARZADEH, HAMID, SALIMIFARD, KHODAKARAM, & MOGHDANI, REZA. (2013). APPLICATION OF MONTE CARLO SIMULATION IN THE ASSESSMENT OF EUROPEAN CALL OPTIONS. IRANIAN JOURNAL OF MANAGEMENT STUDIES, 6(1), 7-25. SID. https://sid.ir/paper/240940/en

Vancouver: Copy

SHAHBANDARZADEH HAMID, SALIMIFARD KHODAKARAM, MOGHDANI REZA. APPLICATION OF MONTE CARLO SIMULATION IN THE ASSESSMENT OF EUROPEAN CALL OPTIONS. IRANIAN JOURNAL OF MANAGEMENT STUDIES[Internet]. 2013;6(1):7-25. Available from: https://sid.ir/paper/240940/en

IEEE: Copy

HAMID SHAHBANDARZADEH, KHODAKARAM SALIMIFARD, and REZA MOGHDANI, “APPLICATION OF MONTE CARLO SIMULATION IN THE ASSESSMENT OF EUROPEAN CALL OPTIONS,” IRANIAN JOURNAL OF MANAGEMENT STUDIES, vol. 6, no. 1, pp. 7–25, 2013, [Online]. Available: https://sid.ir/paper/240940/en

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