Monte Carlo methods can be loosely defined as statistical simulation methods and are among the most widely used methods in financial applications. This course aims to give the students a significant familiarity with the application of Monte Carlo methods on the pricing and risk analysis of financial derivatives. We cover the underlying principles of Monte Carlo methods, random number generation from various probability distributions, simulation of Brownian motion and geometric Brownian motion, variance reduction techniques, quasi Monte Carlo methods, calculation of sensitivities and pricing of American options. Use of computers for implementing the methods covered is a central part of the course.
