Monte Carlo - Financial definition
Financial acronyms
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Concise definition of the term Monte Carlo
Term used to describe a specific option pricing method, the Monte Carlo simulation. This method generates a path of prices for the underlying asset, and the option is priced at maturity (within the model). The method is then repeated, with a second option price determined. Many thousands of trials are then carried out, and the average of all the trials is the final option price.
Comprehensive definition of the term Monte Carlo
The Monte Carlo simulation is often used to price path-dependent options.