MC: 6.1 Simulation Methods Flashcards
(7 cards)
1
Q
If return Y is “lognormal” then the natural log of Y is ________.
A
Normal
2
Q
If the price relatives are lognormal, then the log of the price relatives is _____.
A
Normal
3
Q
If you assume that Pt/Po is lognormal, the continuously compounded return is ______.
A
Normal
4
Q
Assuming identical independent returns, to scale from a short time(t) to a longer time period (T) , the equation is_____.
A
5
Q
What type of value(s) does the Monte Carlo simulation produce?
A
A range of values.
6
Q
Can you change model assumptions in Monte Carlo simulation?
A
Yes, model assumptions can be changed to assess sensitivity of output.
7
Q
What is a Monte Carlo simulation useful for?
A
Useful for complex securities with no neat “analytical” formula for pricing.
