There are several ways to compute the expected value of a derivative security. These methods require knowledge of several statistics of the underlying security, such as the mean return and the standard deviation of the return (the volatility). If these parameters are constant, and if the interest rate is constant, then reasonable formulas exist for determining the value of the derivative. However, if these parameters are not constant, then the simple formulas are not sufficient: price movements of the underlying security as well as the interest rate must be simulated. In general, this Monte Carlo simulation is a difficult computational problem, but is well-suited for parallel computation. This applet shows how parallelism can be used to solve the problem of evaluating derivatives.
This calculator is based on a paper, "Fast-Cost-Effective Computations of Derivatives," published in the Proceedings of the Third International Conference on Artificial Intelligence Applications on Wall Street. Inductive Solutions, Inc. is a New York City corporation that specializes in applying innovative technologies to real-world problems. Drop us a line at Inductive_Solutions@MCIMail.com.