Black Scholes

Using Octave For Asset Price Simulation

In this blog we want to demonstrate the power of Octave for doing simulations. Specifically we will take a look at the Black Scholes formula and how fast an option price computed using Monte Carlo simulation will converge to the actual value using the closed-form solution. The idea is to demonstrate how Octave can be used for this kind of simulations. In a previous blog we showed how to created plots, so here will will focus on the simulation only. The mantra when using Octave is "use vectors and matrices". If you can pull that off, your code will be efficient. On the other hand if you need to resort to for-loops, that will slow things down significantly.

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