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What is Monte Carlo Simulation

What is Monte Carlo Simulation?

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Monte Carlo simulations are a method of solving probabilistic problems by numerically ‘imagining’ several possible scenarios or games so as to compute statistical properties as expectations, probabilities or variances of specific outcomes. In finance we utilize such simulations to show the future behaviour of equities, interest rates and exchange rates etc., in order to either study the possible future performance of a portfolio or in order to price derivatives.

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