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Basic Question 2 of 4

In a Monte Carlo method, interest rate paths are generated based on:

I. probability distribution.
II. volatility assumption.
III. the model itself.
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User Contributed Comments 1

User Comment
myron The Monte Carlo method is an alternative method for simulating a sufficiently large number of potential interest rate paths in an effort to discover how the value of a security is affected and involves randomly selecting paths in an effort to approximate the results of a complete pathwise valuation.
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Edward Liu

Edward Liu

Learning Outcome Statements

describe a Monte Carlo forward-rate simulation and its application.

CFA® 2024 Level II Curriculum, Volume 4, Module 29.