Simulation method and system for the valuation of derivative fin

Details Simulation method and system for the valuation of derivative fin Simulation method and system for the valuation of derivative fin

1997-08-15

2000-05-09

MacDonald, Allen R.

Data processing: financial, business practice, management, or co

Automated electrical financial or business practice or...

Finance

G06F 1760

Patent

active

060616628

ABSTRACT:
A Monte Carlo system and method are presented for the pricing of financial instruments such as derivative securities. A path-integral approach is described that relies upon the probability distribution of the complete histories of an underlying security. A Metropolis algorithm is used to generate samples of a probability distribution of the paths (histories) of the security. Complete information on the derivative security is obtained in a single simulation, including parameter sensitivities. Multiple values of parameters are also obtained in a single simulation. The method is applied in a plurality of systems, including a parallel computing environment and an online real-time valuation service. The method and system also have the capability of evaluating American options using Monte Carlo methods.

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Downes, John and Jordan E. Goodman, Dictionary of Finance and Investment Terms (4th ed.). Hauppauge, NY: Barron's, 1995. (p. 51).

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