Option Pricing: Monte Carlo Simulation
Interactive

Option Pricing: Monte Carlo Simulation

Intuition Publishing
Updated Sep 24, 2020

Monte Carlo simulation is the fall back when pricing options. If other models are unsuccessful, future price paths can be generated using a Monte Carlo simulation, and then discounted to get an option price. We describe the pricing process using Monte Carlo simulation, and then discuss the advantages and difficulties associated with it, including its problems with early exercise.