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Understand Monte Carlo simulations in quantitative finance: pricing exotic options, stress-testing portfolios, and simulating stochastic market paths.
Monte Carlo simulation in finance is a computational technique that generates thousands of random price trajectories based on stochastic equations to evaluate complex derivative payoff expected values or portfolio risk profiles.
Named after the famous Monaco casino, the method translates probability distributions into actionable numerical estimates.
Use variance reduction techniques (antithetic variates, control variates), quasi-Monte Carlo Sobol sequences, and GPU vectorization.