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Where are Monte Carlo simulations used

Where are Monte Carlo simulations used?

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Monte Carlo simulations are used within financial problems for solving two kinds of problems:

• Exploring the statistical properties of a portfolio of investments or cashflows to determine quantities like expected returns, risk, possible downsides, probabilities of making certain profits or losses, etc.

• Finding the value of derivatives by exploiting the theoretical relationship among option values and expected payoff in a risk-neutral random walk.

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