Simulation of Financial Asset Prices and Returns

Free CFA Level I lesson in Quantitative Methods. 13 min read, ~1,908 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, generating many synthetic samples from one dataset. Each draw is independent and equally likely. Monte Carlo generates random draws from an ASSUMED distribution (often...