Speaker
Gabor Molnar-Saska
(Morgan-Stanley)
Description
Monte Carlo simulation is used extensively in financial mathematics since analytic solution for complex pricing problems does not exist. First, I will give some introduction on financial products and then the basic concept of pricing will be shown through a simple example. The advantages and challenges of Monte Carlo method will be presented in terms of valuation and risk calculations. A typical example of use of Monte Carlo methodology is the American type option, where the payout function of the product depends not only on the final value, rather the whole trajectory of the underlying products. In the presentation I will show some basic American type option problem, and show how we can avoid generating bushy Monte Carlo paths based on a linear regression following the Longstaff-Schwartz methodology. Finally, I will present some possible extensions of this approach.
