Abstract

Monte Carlo simulation techniques are performed in Excel with multiple applications for option pricing: a single Geometric Brownian motion (GBM) process, a GBM process with volatility bootstrapping, and two correlated GBM processes.  This leads to the creation of a “generic” Monte Carlo simulation framework that can be applied to many different models in addition to the demonstrated commercial real estate valuation/transaction model.   Because the models are all programmed in Excel with minimal VBA programming, the techniques become very accessible for practitioners.

KEY TAKEAWAYS:

Various Monte Carlo simulation techniques are implemented in Excel to perform option pricing applications with (1) a single Geometric Brownian motion (GBM) process, (2) a GBM and volatility bootstrapping, and (3) two correlated GBM processes.

A “generic” Monte Carlo simulation framework emerges that can be implemented using any model with at least one randomly distributed parameter.  An application of a commercial real estate valuation/transaction is demonstrated.

All of the Monte Carlo simulation applications are performed within Excel with minimal VBA programming, making the techniques readily accessible to practitioners.  Further, the use of =LAMBDA function is also demonstrated, which can be beneficial to practitioners as well.

Document Type

Working Paper

Publication Date

12-15-2025

Publisher Statement

Please note that this paper has been accepted for publication in the Journal of Wealth Management and is no longer available in the repository. The abstract and associated Excel files are available.

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Click below to download supplemental content.

GENERAL-MONTE-CARLO-GBM-BOOT-PAPER.xlsm (40 kB)
GENERAL-MONTE-CARLO-GBM-PAPER.xlsx (6255 kB)
GENERAL-MONTE-CARLO-REAL-ESTATE-PAPER.xlsm (72 kB)
GENERAL-MONTE-CARLO-STOCHVOL-PAPER.xlsm (342 kB)
GENERAL-MONTE-CARLO-GBM-BOOT-MAKEARRAY-PAPER.xlsx (10 kB)

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