Python for Finance

Monte Carlo Simulation
The histogram of our simulated terminal prices is shown as follows:
As we mentioned in Chapter 9, Portfolio Theory, in order to generate two correlated
random number time series, there are two step involved: generate two random time
series x1 and x2 with a zero-correlation; and then apply the following formulae:
Here, ρ is the predetermined correlation between those two time series. Now, y1 and
y2 are correlated with a predetermined correlation. The following Python program
will implement the preceding approach:
import scipy as sp
sp.random.seed(123)
n=1000
rho=0.3
x1=sp.random.normal(size=n)
x2=sp.random.normal(size=n)
y1=x1
[ 440 ]