# Category:Monte Carlo simulation

From LiteratePrograms

A Monte Carlo simulation is an algorithm commonly used to obtain estimations of the expectation of a random variable. It is widely used in quantitative finance to estimate the payoff of an option.

The principal is very simple:

- simulate a lot of realizations of the random variable;
- the empirical mean is a good estimator of the expectation of the random variable.

The difficult points are:

- to generate pseudo random numbers
- to quantify the accuracy of the obtained estimation

## [edit] External links

- The en.wikipedia article about the Monte Carlo method.
- An algorithm for computing the inverse normal cumulative distribution function, by Peter J. Acklam.

## Pages in category "Monte Carlo simulation"

The following 2 pages are in this category, out of 2 total.