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 downloads of this working paper are for private/personal use only. Do not cite without permission.
Recommended Citation
Arnold, Tom; Besik, Deniz; Liu, Xia (Summer); and Tran, Nancy, "Multiple Application Models for Monte Carlo Analysis in Excel" (2025). Finance Faculty Publications. 82.
https://scholarship.richmond.edu/finance-faculty-publications/82
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)