In Excel simulate the stock price path over 1 year using daily time steps (252 trading days in a year) and random samples from a normal distribution. Chart the simulated stock price path. By hitting F9 observe how the path changes as the random sample change.
Make sure to use the correct stochastic process
DS = µ*S*Dt + σ*S*e*sqrt(Dt)
where µ and σ are proportionate to the stock price (expressed as %).
To get the random sample for ε use function “=NORMSINV(RAND())”
Use the Table function to run 1,000 Simulation Iterations and get the results.
Choose a Call or a Put option and its Strike and find Expected Payoff, then discount it to the present time, to get the Options price.
Build the Charts for Visualization purposes and to check for any obvious issues. If something is out of line (not as expected) – recheck your work!
Use Monte-Carlo-Example.xlsxDownload Monte-Carlo-Example.xlsx as an example, but do your own work, as outlined above.
Please submit by DUE date. You’ll receive up to 2 Assignment points (2%).