- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 27. The Arbitrage-Free Valuation Framework
- Subject 5. The Monte Carlo Method
CFA Practice Question
In a Monte Carlo method, interest rate paths are generated based on:
II. volatility assumption.
III. the model itself.
I. probability distribution.
II. volatility assumption.
III. the model itself.
Correct Answer: I, II and III
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. |