Simulation

Question 1

When simulating, z_i =

Answer 1

z_i = N^-1(u_i)

Question 2

The simulated value of the stock price at time T

S_T =

Answer 2

Question 3

Use the _____ distribution only when discounting is needed.

Use the _____ distribution when discounting is not needed.

Answer 3

Use the risk-neutral distribution only when discounting is needed.

Use the true distribution when discounting is not needed.

Question 4

Control Variate Method

Y^* =

Answer 4

Question 5

Control Variate Method

Answer 5

Question 6

Var[Y^*] =

Answer 6

Question 7

Var[Y^*] is minimized when

ß =

Answer 7

Question 8

When ß is set to minimize Var[Y*],

Var[Y*] =

Answer 8

Question 9

Antithetic Variate Method

For every u_i, also simulate using _____

Answer 9

Antithetic Variate Method

For every u_i, also simulate using 1 - u_i

Question 10

Antithetic Variate Method

For every z_i, also simulate using _____

Answer 10

Antithetic Variate Method

For every z_i, also simulate using -z_i

Question 11

Answer 11