Modeling and Simulation of Financial Markets

Mehrdoust, Farshid; Noorani, Idin

doi:10.22124/psug.2025.9151

Modeling and Simulation of Financial Markets

Document Type : Original Article

Authors

Farshid Mehrdoust ¹
Idin Noorani ²

¹ Department of Applied Mathematics and Computer Science, Faculty of Mathematical Science, University of Guilan

² Department of Applied Mathematics

10.22124/psug.2025.9151

Abstract

Today, simulation has become an essential tool in modeling financial markets, pricing derivatives, and risk management. Simulating financial models is a suitable method for understanding and diagnosing the behavior of financial instruments such as stocks and the current value of a portfolio. On the other hand, since it is impossible to price financial derivatives analytically or even semi-analytically in many cases, the use of methods based on Monte-Carlo simulation will be very helpful. In this book, while expressing the basic concepts in financial mathematics, the simulation and modeling of financial markets by some of the most common stochastic models along with their corresponding algorithms have been expressed in pseudo-code form. Also, in this book, the evaluation of financial markets and the pricing of derivative instruments on the underlying assets are discussed from the point of view of simulation. The pricing of financial derivatives is investigated using the Monte-Carlo simulation method, and some of the most important and newest variance reduction methods are studied to improve the Monte-Carlo simulation method.

Graphical Abstract