Jul 19

Monte Carlo Simulation with GBM (FRM LO 14.1)

by David Harper, CFA, FRM, CIPM

FRM | Risk |

mcs14min

Here is my previous four-part introduction to Monte Carlo Simulation (MCS) under the simple one-variable assumption of geometric Brownian motion (GBM); it includes the difference between discrete and continuous random (stochastic) processes:

Best way to learn

But the best way to learn is to analyze the spreadsheet below. I constructed this simple MCS. It conducts 40 trials of a stock 10 days into the future. Click on this image to view my 14-minute overview of the spreadsheet:

stripMCSGBM

The Spreadsheet (EditGrid or XLS)

You can download an Excel version here or view the EditGrid spreadsheet below in a full-wide window.

EditGrid Spreadsheet by bt/frm2007.

Comments

  1. Ralinala T.J. 22 Jul 2007

    I’m just starting to look at this site. Seems as it will give a very good background.

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