2️⃣CFRM 505: Monte Carlo Methods in FInance

This course was unique as the homework was all code but the exams were all derivations, blending comprehension with application. Boils down to simulating means and minimizing variances.

Reading Material:

• Monte Carlo Methods in Financial Engineering, Glasserman.

Simulation of models of equity and fixed-income markets applied to financial applications, including derivative security pricing and risk management. The course will begin with a rapid review of probability distributions, statistics, and generating random numbers and samples from specified distributions.

1. Generating Random Variables

   1. Inverse Transform Method

   2. Composition Method

   3. Acceptance-Rejection Method

2. Simulating Stochastic Processes

3. Variance Reduction Techniques

   1. Control Variates

   2. Antithetics

   3. Conditional Monte Carlo

   4. Stratified Sampling, Importance Sampling

4. Pricing of Financial Derivatives

5. Price Sensitivity Estimation

6. Risk Estimation, Simulation Methods