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The upgrade also allows you to use Monte Carlo methods. Most European options can be valued using Monte Carlo methods. In particular this method allows for the valuation of daily-sampled barrier options.
The settings for Monte Carlo methods are displayed.
- Firstly, you can choose whether to utilise “Full” or “Antithetical” methods. “Full” just involves using random numbers directly from the iPhone’s random number generator. “Antithetical” utilises each random number twice. In the first iteration the random number is used in the typical way. In the second iteration the random number is flipped (2nd value = 1 – original value). This keeps the distribution of outcomes more symmetrical and generally results in faster convergence.
- Secondly, you can set the number of iterations that are run. Typically, 10,000 will be sufficient but this value can be set at up to 1,000,000.
- Finally, you can select a “Seed”. A seed value of 0 will tell OptionsEQ to take random numbers directly from the iPhone’s random number generator. If you set any other seed value, OptionsEQ will take that number as the initial seed. Using specified seeds allows you to exactly replicate two Monte Carlo runs or to isolate the exact impact of a parameter change.
