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A Trader’s Guide to Monte Carlo Methods


Objective: a no more "black-box" philosophy is used to provide clear description and "working" knowledge of the Monte Carlo method to apply to real world P&L, position keeping, and risk management issues, and:

·      clear working understanding of Monte Carlo methods in pricing and risk management

·      will be able to set-up your own simple MC valuations

·      will clearly understand the use and misuse of MC in risk management

·      will clearly understand the application of MC to portfolio valuation and risk management

·      to use MC for the simulation of trading/hedging/position strategy analyses

·      100% of the delegates to be able to price a vanilla call via MC, and 70% of the delegates to price and risk value virtually any single factor security or derivative via MC


·      includes many worked examples (vanilla, exotic, structured products)

·      includes spreadsheet’s and code

·      more of a hands-on workshop than seminar

·      usage of spreadsheet as well as HGL code for pricing and risk management

Audience:  intended for market professionals and focusing on end users (some understanding of markets and products helpful), such as:

·      Traders, sales, support,

·     Management, treasurers,

·      Risk Management

·      intended for everybody, but focusing on end users such traders, sales staff, financial engineers, F/Office and support personnel, rather than a experienced quants (unless they want to know how trader’s think)

Table of Contents

1)      Overview: consideration of the big picture and objectives of securities and derivatives valuation and risk management

2)      The Basics: presentation on the origins and meaning of quantitative methods and models used to represent stochastic (uncertain) processes and the applications to finance.  This section culminates not only with a clear understanding of the fundamentals of all pricing models, but also a worked example of pricing a vanilla call and put options with MC.

3)      Exotic Options: a series of workshops introducing a range of exotic options (Early exercise, Barriers, Digitals, Compounds, Asian), there description/usage and the valuation difficulty.  Each exotic is explicitly valued via MC with clear presentation of approach and “simple spreadsheet and (VBA) code”.

4)      Representation of the Price Process: extension of the ideas from 2) to more general cases of modelling more complex price

5)      Special Cases: process and financial instruments (e.g. term structure, correlation products, stochastic volatility etc).

6)      Hedging with MC: this section illustrates the pros and cons of using MC based methods for assessing position risk for conventional position exposure calculations as well as for considering MC as a method for holding period analyses.

7)      Portfolio Simulation 1: introduces MC as a technique for assessing trading strategies of a position over a holding period, case study of a convertible bonds position hedging strategy analyses.

8)      Portfolio Simulation 2: extends 7) to consider MC as a technique for analysing portfolio exposure and risk adjusted return for general portfolios under multiple strategies.

9)      Implementation of the MC Method: presentation on the issues, costs and benefits of implementing MC

10)  Properties of the MC Method: mathematical and usage properties of MC, random number generators, variance reduction methods

11)  Pros and Cons of the MC Method: comparison of the MC method to analytic, tree and PDE methods in terms of set-up cost, usage cost, and implications.


922 Pages of comprehensive and extensively illustrated Handout Notes (see samples here)

Plus copies of relevant TG2 Books/e-Books

Note: Seminars can be tailored to your trading, risk, client, and systems needs.  Submit your needs, and/or "cut/paste" from other Seminars (see entire "standard" list HERE)

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Last modified: July 25, 2011