QA 13. Simulation and Bootstrapping

Learning Objectives

1) Describe the basic steps to conduct a Monte Carlo simulation.

2) Describe ways to reduce Monte Carlo sampling error.

3) Explain the use of antithetic and control variates in reducing Monte Carlo sampling error.

4) Describe the bootstrapping method and its advantage over Monte Carlo simulation.

5) Describe pseudo-random number generation.

6) Describe situations where the bootstrapping method is ineffective.

7) Describe the disadvantages of the simulation approach to financial problem solving.