Forums > University > monte carlo simulation vs finite difference method

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 rkdlbh Total Posts: 1 Joined: Oct 2015
 Posted: 2015-10-20 00:13 Hello allI am doing a university project on these two methods. I have read up on/watched videos on both these topics but I am struggling to get a true understanding on how they actually work and I am unable to ask for internal help from the university. could someone just give me a basic( put in layman terms) how each one works so I can make some sort of start to the project then work from there. all help is appreciatedOnce again it must be stated I am not asking posters to do my work for me but rather just give me a slight push in the right direction and I can go on from there. the start is always the most difficult for me!thank you in advance
 Rashomon Total Posts: 209 Joined: Mar 2011
 Posted: 2015-10-20 05:11 rkdlbh, when you say "versus" it sounds like you think these two methods do the same thing.You might want to post what does not make sense to you from the Wikipedia pages / first google results / videos you watched, or try a site (like Cross-Validated / math.SE / even Quora) that's more focussed to what you are asking.I can recommend Justin Esarey's lectures on MC sampling, and OCW for finite difference. "My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel
 mmport80 Total Posts: 85 Joined: Jul 2010
 Posted: 2015-10-20 10:02 You're better off finding some introductory books on the subject.FWIW,Analytical models - (Black-Scholes etc.) - used for cases where maths can be solvedBinomial tree - numerical method to approximate cases where maths won't find you a solution (American options)Fin Diff - more modern (better in every way) to do the same (grid rather than tree)Monte Carlo - used for cases when the dimensions or number of variables is v large.
 Cheng Total Posts: 2864 Joined: Feb 2005
 Posted: 2015-10-20 13:34 What is the application you look at ? Derivatives ? Other things ? "He's man, he's a kid / Wanna bang with you / Headbanging man" (Grave Digger, Headbanging Man)
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