Simulation method and system for the valuation of derivative financial instruments
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United States of America Patent
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May 9, 2000
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app pub date -
Aug 15, 1997
filing date -
Aug 15, 1997
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Abstract
A Monte Carlo system and method are presented for the pricing of financial instruments such as derivative securities. A path-integral approach is described that relies upon the probability distribution of the complete histories of an underlying security. A Metropolis algorithm is used to generate samples of a probability distribution of the paths (histories) of the security. Complete information on the derivative security is obtained in a single simulation, including parameter sensitivities. Multiple values of parameters are also obtained in a single simulation. The method is applied in a plurality of systems, including a parallel computing environment and an online real-time valuation service. The method and system also have the capability of evaluating American options using Monte Carlo methods.
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