Use the Monte-Carlo simulation technique to calculate the current price of the derivative, assuming three simulated paths. In the simulation, you must use some OR all of the following z(i, t) random draws: where, for example, z(i = 2, t = 1) = 0.4 refers to the random draw for the 2nd simulated path in the first month. Use continuous compounding for all present value calculations. Show all working so that partial marks can be allocated for incorrect answer.

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Certainly I can provide you with a simplified example of a Monte Carlo simulation for pricing a deri... View the full answer