Quant Primer

Contents

Monte Carlo Simulation - PPT Overview

Monte Carlo Simulation - Primer

These materials provide a structured and practical introduction to Monte Carlo simulation for derivative pricing, with a particular focus on equity options. The slides combine rigorous theoretical foundations with real-world application, covering stochastic asset price modeling using Geometric Brownian Motion, Ito’s Lemma, Girsanov’s Theorem, Change of Measure, Risk-Neutral Valuation, and the role of martingales and arbitrage in modern asset pricing. They then illustrate how to implement a Monte Carlo framework to price both vanilla and exotic options, validate results against Black–Scholes closed-form solutions, and extend the methodology to double-barrier knock-out and other exotic derivatives. The resource also highlights how simulation outputs—such as exercise and knock-out probabilities—can inform strategy design and risk management in client-specific derivative structuring.

This Quant Primer is especially valuable for anyone aiming to understand how advanced quantitative techniques underpin actionable insights in derivatives pricing and structuring, bridging the gap between theory and practical implementation.

Keywords: Monte Carlo, derivatives, equity options, stochastic modeling, Geometric Brownian Motion, Ito’s Lemma, Girsanov’s Theorem, Change of Measure, Risk-Neutral Valuation, martingales, arbitrage, exotic options, knock-out probabilities, pricing framework, quantitative finance