simplemc2.cpp

C++ design pattern in finance. Must know for QF engineers

//
//
//                      SimpleMC2.cpp
//
//

#include<SimpleMC2.h>
#include <Random1.h>
#include <cmath>

// the basic math functions should be in namespace std but aren't in VCPP6
#if !defined(_MSC_VER)
using namespace std;
#endif

double SimpleMonteCarlo2(const PayOff& thePayOff,
                         double Expiry,  
						 double Spot, 
						 double Vol, 
						 double r, 
						 unsigned long NumberOfPaths)
{
	double variance = Vol*Vol*Expiry;
	double rootVariance = sqrt(variance);
	double itoCorrection = -0.5*variance;
	double movedSpot = Spot*exp(r*Expiry +itoCorrection);
	double thisSpot;
	double runningSum=0;

	for (unsigned long i=0; i < NumberOfPaths; i++)
	{
		double thisGaussian = GetOneGaussianByBoxMuller();
		thisSpot = movedSpot*exp( rootVariance*thisGaussian);
		double thisPayOff = thePayOff(thisSpot);
		runningSum += thisPayOff;
	}
	double mean = runningSum / NumberOfPaths;
	mean *= exp(-r*Expiry);
	return mean;
}

/*
 *
 * Copyright (c) 2002
 * Mark Joshi
 *
 * Permission to use, copy, modify, distribute and sell this
 * software for any purpose is hereby
 * granted without fee, provided that the above copyright notice
 * appear in all copies and that both that copyright notice and
 * this permission notice appear in supporting documentation.
 * Mark Joshi makes no representations about the
 * suitability of this software for any purpose. It is provided
 * "as is" without express or implied warranty.
*/