This is excellent. This shows how to perform a Monte Carlo simulation with more than 1 asset. I have been looking for this for a long time, in orden to perform a VAR analysis. The next step would be to multiply each asset return by its portfolio weight, right? Thanks a lot!
I haven't done correlation in a while so I was hoping for that too! But I do appreciate all Auke did provide it was amazing E2: =B2^2 (Asset 1 * Asset 1) E3 =B5*B3*B2 (Asset 1 * Asset 2 * Correlation) F2 = B5*B3*B2 (Asset 1* Asset 2 * Correlation) F3 = B3^2 (Asset 2 * Asset 2) Enjoy!
D and E columns have the same formula, a 1 by 2 vector (mean of asset 1 & mean of asset 2 ) + the transpose of [2 by 2 Cholesky * a 2 by1 column vector (the random number deviation in B and C)] so the result is 1 by 2, fill both cells
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This is great. You are better than my professor on this.
Thanks Professor. This is well explained.
The mechanics are very clear explained, but you haven’t explained why you are applying the Cholesky transformation and how it correlates the returns.
Thank you, can u provide us the spread sheet? Where can we download it?
This is excellent. This shows how to perform a Monte Carlo simulation with more than 1 asset. I have been looking for this for a long time, in orden to perform a VAR analysis. The next step would be to multiply each asset return by its portfolio weight, right? Thanks a lot!
this method can be used for any kind of distributions? for example a discrete binomial distribution
What is the formula for the E column? I just do not understand how you can get two different returns there in D and E...
I haven't done correlation in a while so I was hoping for that too! But I do appreciate all Auke did provide it was amazing
E2: =B2^2 (Asset 1 * Asset 1)
E3 =B5*B3*B2 (Asset 1 * Asset 2 * Correlation)
F2 = B5*B3*B2 (Asset 1* Asset 2 * Correlation)
F3 = B3^2 (Asset 2 * Asset 2)
Enjoy!
D and E columns have the same formula, a 1 by 2 vector (mean of asset 1 & mean of asset 2 ) + the transpose of [2 by 2 Cholesky * a 2 by1 column vector (the random number deviation in B and C)] so the result is 1 by 2, fill both cells
The lower triangle is used for column D and the upper triangle shall be used for column E
In which cell do u use the standard deviations of 20% and 30%?
How to do cholesky for 3 factor
wikipedia has a pretty good explanation just look for cholesky decomposition there
Great job!
Good work thank u
NORM.INV(RAND()) does it have a semi colon after this?