Abstract
Monte Carlo simulation or probability simulation is a technique used to understand the impact of risk and uncertainty in nancial and other forecasting models. It is very useful when complex nancial instruments need to be priced. Exotic options are listed on the JSE on its Can-Do platform. Most listed exotic options are marked-to-model and the JSE needs accurate values at the end of every day. Monte Carlo methods in a local volatility framework are used when exotic options are priced. This paper discusses Monte Carlo (MC) simulation as implemented and used by the JSE.
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