OPTIONS:  A  MONTE  CARLO  APPROACH 

Phelim  P.  BOYLE* 

The University  of British  Columbia,  Vancouver, BC,  Canada 

Received  March  1976,  revised version  received  November 1976 

This  paper  develops a Monte  Carlo  simulation  method  for  solving option  valuation  problems. 

The  method  simulates  the  process generating  the  returns  on  the  underlying  asset and  invokes 

the  risk  neutrality  assumption  to  derive  the  value  of  the  option.  Techniques  for  improving 

the  efficiency  of  the method  are  introduced.  Some  numerical  examples  are  given  to  illustrate 

the  procedure  and  additional  applications  are  suggested.