is there any better financial model than Monte Carlo?

Answer 1

Monte Carlo methods (or simulation) tend to be one of the most flexible modeling tools available in finance. They allow you to build very complex and intuitive processes (e.g. path-dependent options) and then simulate one or more random inputs and observe the outcomes. However, this flexibility comes at the cost of 1) computational expense--simulations typically require a lot of calculations, and 2) lack of convergence--your answer may change, though only slightly, from run to run.

On the otherhand, closed-form and analytical models are computationally efficient and typically yield a finite set of solutions (e.g. Black-Scholes). However, this may come at the cost of making over-simplifying assumptions about the problem you are trying to solve (e.g. normally distributed and independent variables).

Additional classes of discrete modeling methods include lattice and finite differences. Generally speaking, these methods fall somewhere in between Monte Carlo and analytical methods in term of computational expense, and converge rapidly to a solution. However, modeling flexibility may not be as good as Monte Carlo.

Check out:

http://www.riskglossary.com/link/monte_carlo_method.htm

Answer 2

Monte Carlo is no Financial Model, it is a method by which you can calculate the YTM or IRR by plugging in denominator numbers or rates till the model converges to zero or to the investment made. Monte Carlo analysis it is called first was propounded by Jon Von Nuemann the Austrian and later American Mathematician even before computers were made practical to calculate such iterative processes. It is a method not a model.
Financial Models are different, there are many different models like Cash flow model, Economic Reorder Quantity or EOQ, Black & Scholes Model, Valuation Models, Capital Asset Pricing Models etc;.

Answer 3

I would say the Monte Carlo simulation is the best model as far as how complete and thorough it is. 99.9% of all people will not be able to come even close to the detail MC can place on your portfolio. When you factor in the asset allocation tools they have as well as the portfolio simulations utilizing varying rates of return - you really get an accurate picture of your situation.

Answer 4

Yes, democracy. Monte Carlo excludes most people who can't afford to live there.

Financially, Monte Carlo is doing well financially, but this is an inflated designed facade.

Answer 5

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