Simulation Is Used to

question 53

Multiple Choice

Simulation is used to

• A) find possible worst case values for the dependent variable(s).
• B) find worst case and best case values for the dependent variable(s).
• C) find distribution information for the dependent variable(s).
• D) find median values for the dependent variable(s).

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Definitions:

Binomial Option Model

A numerical method used in finance to price options by breaking down the option’s life into discrete time intervals.

Dynamic Hedging

A portfolio management strategy that involves continuously adjusting the hedge positions as the market conditions and prices of the underlying assets change.

Portfolio Insurance

Portfolio insurance is a strategy used by investors to hedge against market downturns by dynamically adjusting exposure to equities and typically involves the use of options or cash reserves.

Black-Scholes Model

The Black-Scholes Model provides a theoretical estimation of the price of European-style options, factoring in the stock's current price, its volatility, the option's strike price, and time to expiration, along with risk-free interest rates.