AEM 6061 - Risk Simulation and Monte Carlo Methods

Spring. 3 credits. Letter grades only.

Prerequisite: students should have a basic understanding of agricultural, corporate, or managerial finance. Enrollment limited to: graduate students from any field. Co-meets with AEM 4060.

C.G. Turvey.

Risk Simulation and Monte Carlo Methods deals with the concepts of randomness and risk in financial management, project analysis, capital budgeting, stock valuations, derivatives, and investment portfolios. The focus of the course is on applying realistic probability models through Monte Carlo simulation and optimization to a wide variety of relevant problems in investment, agriculture and other applications. In a addition to lectures, weekly seminars will This seminar will explore the development of Monte Carlo simulation from a historical point of view, examine in greater detail stochastic processes, and understand the basic structure of Ito processes and the stochastic calculus and how to employ these techniques in Monte Carlo simulations.

Outcome 1: Explain the development of Monte Carlo simulation from a historical point of view.

Outcome 2: Use simulation in experimental mathematics.

Outcome 3: Use the basic structure of Ito processes and the stochastic calculus to employ these techniques in Monte Carlo simulations.

Outcome 4: Apply Monte Carlo techniques to problems of cash flow management, pro-forma financial projections, stock valuation, NPV project valuation, financial options, and real options to problems in financial economics and agriculture.