Economic Variables And Asset Returns Using Monte Carlo Technique
Economic trends vary from time to time. No one ensures today’s gain will lead to the consequence that I will still profit tomorrow. Therefore, it is truly crucial to generate scenarios for various economic variables and asset returns using Monte Carlo technique across multiple time periods. Moreover, many economic variables such as equity returns, credit transitions and exchange rates are stochastic processes. As a simple illustration for equity scenarios, we can use the basic Geometric Brownian Motion, which is given by: , which is unpredictable ‘random shocks’. In order to deal with the randomness, Economic Scenario Generators produce the forwardlooking situations for a specified set of risk factors.
Generally, ESG widely uses in two main directions: realworld projections for risk management and marketconsistent valuation for pricing. The marketconsistent valuation, also known as riskneutral valuation will be discussed in the following sections.
2. Liability Valuation
2.1 Cash Flows
A UK based insurance company has recently sold retirement products that offer policyholders a lump sum of £500,000 at retirement. All policyholders will retire in exactly 15 years. Ignoring fees, commissions, margins for profits, etc., how much should the company charge for such a product? From the above graph, we know no inflows and outflows during the first 14 years while in the fifteenth years, a lump sum cash flow of £500,000 will be paid…

Monte Carlo Simulation : A Computerized Mathematical Technique
1932 Words  8 PagesI. Introduction The Monte Carlo Simulation is a computerized mathematical technique that allows people to account for risk in quantitative analysis and decision. It furnishes the decisionmaker with a range of possible outcomes and probabilities that they will occur for any chance of action. It shows the extreme possibilities of things as well. The system calculates results over and over, each time using a different set of random values from the probability functions. The simulation could involve…

Computational Efficiency of Polar and Box Muller Method: Using Monte Carlo Application
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Economics Variables : Economic Outlook
1859 Words  8 Pages2. Marco Economics Variables 2.1 Australian GDP Figure xx: Source: IMF World Economic Outlook (WEO), April 2015 Figure xx: Australian GDP Growth 2010 – 2015 (ABS 2015) GDP Trend Analysis “Real GDP is the value of all final goods produced in a given time period based on the prices existing in a selected base year” (Layton et al 2012, p.255) and is used as a worldwide measure across different economies. Referred to prices from base year. Real GDP is the preferred method as the economy can be…

Monte Carlo Simulation
218872 Words  876 PagesPreface This is a book about Monte Carlo methods from the perspective of ﬁnancial engineering. Monte Carlo simulation has become an essential tool in the pricing of derivative securities and in risk management; these applications have, in turn, stimulated research into new Monte Carlo techniques and renewed interest in some old techniques. This is also a book about ﬁnancial engineering from the perspective of Monte Carlo methods. One of the best ways to develop an understanding of a model of…

The Importance Of A Parallel Analysis Using The Program Monte Carlo Pca
1404 Words  6 PagesAnother way to identify the number of factors to retain is to perform parallel analysis. Following the steps provided by Pallant (2016), I carried out the parallel analysis using the program Monte Carlo PCA. The results from this analysis recommend retaining only three factors (components for) further investigation. In order to discriminate the factors (and make the interpretation of them easier), two main and the most common, approaches to rotation will be employed. These are the orthogonal (and…

Monte Carlo Simulation Analysis And Decision
1698 Words  7 Pagesfuture prices? Have you heard of the Monte Carlo Simulation? The Monte Carlo Simulation is a computerized mathematical technique that allows people to account for risk in quantitative analysis and decision. It furnishes the decisionmaker with a range of possible outcomes and probabilities that they will occur for any chance of action. It shows the extreme possibilities of different situations as well. The system calculates results over and over, each time using a different set of random values from…

The Return On Total Assets Ratio
925 Words  4 PagesProfitability ratios The return on total assets ratio was computed to establish the return on net earnings from an investment of $1 in total assets (Gibson 2010, p. 308). From table 1 above, the report established that the return on total assets for the British Empire Securities Plc. was 11.48% in 2013 and 5.8% in 2014, indicating a reduction in the rate of return of $1 invested in assets. In 2013, $1 of assets contributed $0.11 towards the profit, while in 2014, it was $0.058. The return on equity was also…

The Economic Properties Of Intangible Assets
9432 Words  38 Pagesdigital economy 4 1.1. The traditional accounting approach and its limits 4 1.2. The economic properties of intangible assets and their consequences 6 1.2.1 The main economic features of intangibles 6 1.2.2 Intangible assets and resource allocation 7 2. The OECD’s approach to taxing digital activities 9 2.1. The redefinition of the permanent establishment concept 9 2.2. The transfer pricing aspects of intangible assets 12 2.2.1 The limits of the arm’s length principle 12 2.2.2 The proposed revision…

A Diagram Of The Historical Returns On Equity And Assets
1159 Words  5 PagesIn exhibit 2 there’s a diagram of the historical returns on equity and assets for both CocaCola and PepsiCo ranging from 1981 to 2000. One of the important findings in this diagram is that PepsiCo had almost doubled their return on equity from 1996 to 2000. PepsiCo was able to rise from 17% all the way to 30% by 2000. Interestingly CocaCola during that same time had their return on equity drop from about 57% to 24%. When looking at both companies during this time period investors must be careful…

Economic Variables And Monetary Policy
1478 Words  6 Pagesor goods when oil import will be paid, or to understand how to leave and consume less oil, go deeper to depth. So, monetary policy can help only what forms of damages takes. The second problem is that central banks have little control of real economic variables, because of neutrality of money. Monetary policy can control only the growth and nominal GDP. If a country has output growth, but at the same time inflation growth as output grow, this situation has nothing beneficial to a county citizens. So…
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