FIN MODELING w/Excel– Homework Assignment 6
MONTE CARLO: Research & Critical Analysis
The Monte Carlo method is used in a variety of quantitative subjects including but not limited to Finance, Statistics, Science and Engineering. There are multiple layers of complexity and detail depending upon the mathematical properties associated with a given problem.
For Homework Assignment #6 you are asked to survey the Finance literature and select a published research paper that provides a practical example on how Monte Carlo is applied for solving a real world problem. The tasks to be completed for this assignment are:
The learning goals from this assignment are:
Some helpful hints to keep in mind:
For example, vehicle traffic is something that affects all of us and can be better understood via the use of Monte Carlo. While traffic jams can often be attributed to accidents, special events or weather, there are often times no apparent cause. Traffic jams can spontaneously occur in the midst of flowing traffic and flow backwards. It may last for a lengthy period and then spontaneously vanish! This type of problem can be deconstructed via Monte Carlo with the Nagel-Schreckenberg model. In this model, the freeway is divided into “M” distinct zones with each holding one vehicle. There are “N” vehicles on the freeway. Time moves forward in discrete steps with each vehicle traveling at velocity “v” and moving ahead by “v” zones in the freeway at each time step. All vehicles obey the maximum speed “v max.” This model can be expanded to include multiple lanes, simulate temporary closures or adding the use of meters to adjust flow of entering traffic and so forth. If you were to research such an application, you would be tasked with summarizing the mathematics, the computer resources and then provide actual results so that your reader is able to understand the basic theory and practice of Monte Carlo for this type of situation.