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A gambler has $2, she is allowed to play a game of chance 4 times and her goal is to maximize her probability of ending up with a least $6. If the gambler bets $ on a play of the game, then with probability 0.4 she wins the game, recoup the initial bet, and she increases her capital position by $; with probability 0.6, she loses the bet amount $; all plays are pairwise independent.
Stochastic simulation. A stochastic simulation is a simulation of a system that has variables that can change stochastically (randomly) with individual probabilities. [1] Realizations of these random variables are generated and inserted into a model of the system. Outputs of the model are recorded, and then the process is repeated with a new ...
The second row is the same generator with a seed of 3, which produces a cycle of length 2. Using a = 4 and c = 1 (bottom row) gives a cycle length of 9 with any seed in [0, 8]. A linear congruential generator (LCG) is an algorithm that yields a sequence of pseudo-randomized numbers calculated with a discontinuous piecewise linear equation.
The technique applied then, is (1) to generate a large number of possible, but random, price paths for the underlying (or underlyings) via simulation, and (2) to then calculate the associated exercise value (i.e. "payoff") of the option for each path. (3) These payoffs are then averaged and (4) discounted to today.
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discount recursively through the tree using the rate at each node, i.e. via "backwards induction", from the time-step in question to the first node in the tree (i.e. i=0); repeat until the discounted value at the first node in the tree equals the zero-price corresponding to the given spot interest rate for the i-th time-step. Step 2.
Luhn algorithm. The Luhn algorithm or Luhn formula, also known as the " modulus 10" or "mod 10" algorithm, named after its creator, IBM scientist Hans Peter Luhn, is a simple check digit formula used to validate a variety of identification numbers. It is described in US patent 2950048A, granted on 23 August 1960. [1]
Generator (computer programming) In computer science, a generator is a routine that can be used to control the iteration behaviour of a loop. All generators are also iterators. [1] A generator is very similar to a function that returns an array, in that a generator has parameters, can be called, and generates a sequence of values.