Siimulate 4 indices behavior

Asilvestrado · October 25th, 2005, 12:58 pm

Let's assume a portfolio composed of 4 funds, each of them follows an index with beta=1. How can I simulate these 4 indices behavior and get a forecasted 3 month serie for each of them? The idea is to use Monte Carlo simulation or scenario simulation to obtain those series and predict how the total value of the fund's portfolio would look like 3 months hence, but I'm not quiet sure how this could be done. Has anyone done this before on the excel?

StrikeOut · December 27th, 2005, 6:03 pm

Hello,Very simple :- your inputs : volatility for the 4 indices (within hisorical measure you just have to add their trend) their correlation, and that's it !!What you have to compute :- 4 independent gaussians (Excel makes it for you) - multiply the paths by the VCV matrix Hope this helps, I can send you a demonstration file if you wish.Best regards,

sofiger · January 19th, 2006, 8:52 pm

Hello StrikeOut!I am also new to quant finance and am trying to simulate interest rate indexes forecasts in Excel. If you can post the demo file that you referred to that would be extremely helpful! Thanks!