Option valuation with Monte Carlo simulation (Excel)
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- Опубликовано: 25 ноя 2024
- Monte Carlo simulation is a powerful method that can be used to solve complex mathematical problems. Today we are showing how to calculate the value of call and put options with the help of the Excel random number generator.
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You can find the spreadsheets for this video and some additional materials here: drive.google.com/drive/folders/1sP40IW0p0w5IETCgo464uhDFfdyR6rh7
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French Guy. Beautiful job. Thanks a lot for your contributions and the help you provide for others. Sorry for my English I'm not so fluent !!!!
thank you very much! please i encourage you to make more quant finance videos- both regarding options and monte carlo simulation. your videos are the closest to application and easy to understand while intuitive.
Hi, and glad you are enjoying the channel! More practically-oriented videos on options will be on the way in the coming weeks so stay tuned!
@@NEDLeducationthis monte carlo method is not using black scholes formula, am i correct?
Beautifully explained. Keep up the good work mate
Thank for nice explanation. In my understanding the Annual return and annual volatility will be same, when we calculate it from historical data or any other method on real stock.
Payoffs are in future, so shouldnt we discount average payoff to get premium corresponding to current date ? To get present value
Great!!!!
Man, I am always the first to check your video lol
Thanks so much for following the channel for over a year now, I really appreciate your continued engagement :)
Nice content😃👍
I really like your channel and the content that you make here BUT..
You should use the GBM Geometric Brownian Motion to simulate the stock prices. What you did here implies that a stock price can be negative which is impossible because they have zero as a lower bound.
Moreover the average payoff at expiration date should be discounted back to t=0.
Options are priced using the risk neutral probabilitiy measure.
There is also the problem of "trading days"
I am not a quant but these are my thoughts about the topic
Hi Wajih, and thanks for the comment! These are potentially valid criticisms, and these can be relatively easily addressed. This is just a simplistic account of the concept. For shorter time periods options are usually traded for, the effects of discounting the payoff, as well as the discrepancy between log returns and simple returns is quite small. I might do a video addressing the limitations of the simpler approach outlined here in the future.
Unless I have missed something here shall we need to discount the value of the payoff to get the option price
obviously.
Монте-Карло для расчета стоимости опциона (basket option) для нескольких активов было бы интересно посчитать, особенно кейс при отрицательных коэффициентах корреляции
thank for the video , as usual learnt a lot .
one thing is confusing me , when the spot increases you say that the put option should carry more value, however intuitively i was thinking that the puts fair value should decrease since the probabilities of the expiry being in the money of that strike becomes lower . ....It would be nice if you explain this i may be missing something fundamental . And also does value estimation also depend on the long or short position taken >
Heya great video - could you upload the diversification ratio spreadsheet as well please
Hi, and glad you liked the video! It is already posted, check this direct link: docs.google.com/spreadsheets/d/1K182AZWyyEOUiYK2_tMBIGTHUPo0wKBv/edit?usp=sharing&ouid=113436662715404606257&rtpof=true&sd=true
excellent lecture! One question I have is - why do we take the simple average instead of a probability weighted one.....is the sampling done in such a way that the prob. of each sample drawn is the same? Thanks!
Very insightful. Is this spreadsheet uploaded to the google drive? I can't find it.
Hi Patrick, and glad you liked the video. Thanks for the heads-up, I have double-checked and reuploaded the file, should be available now.
Will you come out with a black schole option simulation model?
Hi Vaidyanathan, and thanks for the comment! I have got a video on Black-Scholes already, check it out if you are interested: ruclips.net/video/Yyg45hA_uFk/видео.html
Could you please create a similar video to price an American Option using MC simulation?
A bit difficult in excel. But you if search for python code you can find many such codes. Or if you have John C Hull, go through the Longstaff & Schwartz Least Squares method, this is what is used in practice, so you can generate a simple Monte Carlo of lets say 3-4 steps and not more than 10 paths to get the idea cleared.
Your formula does not allow for the value of time in options and only calculates the intrinsic value. Using a formula like Black-Scholes will include the time value, which approaches zero as we near expiration.
so this is how nassim taleb got rich