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Abstract
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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.
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