Dear Wise minds of Wilmotts.

I've been working for a small investment firm for the past 3 months.

My current boss gets a data set from morgan stanley every few months with simulations of inflation rates and average wage inflation.

He wants me to consider possible frameworks for similar simulations on bond prices, stock prices, option prices and entire portfolios. In which the previous assets are combined in various ways, say perhaps 40% bonds, 50% stocks, 10% options.

In this my question is two-fold, I assume, there are methods for simulation, which would be sufficiently accurate for the vast majority of investment firms.

I'd like to ask if I've understood correctly, that monte carlo simulations and Geometric brownian motions are amongst these and perhaps the one's you'd recommend?

Beyond this I've been trying to read up on more advanced methods, in the hopes of finding simulation methods with more accuracy for large portfolios.

My understanding is, that Stochastic portfolio theory could be such a method, can anyone confirm or deny this proposition?

Best regards CtoL (conventional take-off and landing?)