ABSTRACT
Monte Carlo simulation produces results using a stochastic model, rather than an actual experiment with a real system under study. It is regarded as mathematical experimentation and best fit to modern computer. It is one of the easiest things we can do with a stochastic model. Since finance models have become more complicated than ever, practitioners want to use Monte Carlo simulation more and more. This chapter is intended to serve as an introduction of Monte Carlo simulation with emphasis on how to use it in financial engineering. See, e.g., Ripley (1987) and Ross (1990) for general introduction to stochastic simulation.
