Simulation of Financial Asset Prices and Returns
Free CFA Level I lesson in Quantitative Methods. 12 min read, ~1,855 words.
Historical simulation reuses actual past returns in their original time order. No distributional assumption, but limited to events that actually happened. Bootstrap resampling draws WITH REPLACEMENT from the historical sample. Each draw is independent and equally likely. Monte Carlo generates random draws from an ASSUMED probability distribution (often calibrated to...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- simulation of financial asset prices and returns
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