October 13, 2024
Khodakaram Salimifard

Khodakaram Salimifard

Academic Rank: Associate professor
Address: Industrial Management Department, Business & Economics School, Persian Gulf University, Bushehr 75169
Degree: Ph.D in Operations Research
Phone: 07731222118
Faculty: School of Business and Economics

Research

Title Application of Monte Carlo simulation in Assessment of European Call Options
Type Article
Keywords
Journal Iranian Journal of Management Studies
DOI
Researchers Hamid Shahbandarzadeh (First researcher) , Khodakaram Salimifard (Second researcher) ,

Abstract

In this paper, the pricing of a European call option on the underlying asset is performed by using a Monte Carlo method, one of the powerful simulation methods, where the price development of the asset is simulated and value of the claim is computed in terms of an expected value. The proposed approach, applied in Monte Carlo simulation, is based on the Black-Scholes equation which generally defined the pricing of European call options in a dynamic environment. Therefore, the main goal of this study is how can Monte Carlo be applied to finance? Although it is stated that because of being based on randomness, the Monte Carlo method has its obvious disadvantages and does not yield solutions for all possible stock prices, by applying Black-Scholes formula, it is efficient to use this method for calculating payoff. Hence, in the matter of this paper, we introduce the Black-Scholes model and Monte Carlo simulations as main tools to determine.