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Monte Carlo

Name given to a general mathematical method for estimating the solution to numerical problems by the random sampling of numbers with some chosen frequency distribution. In finance, Monte Carlo methods can be used in an attempt to value stock options and performance share grants for the purposes of FAS 123(R) (now called ASC Topic 718). The Monte Carlo simulation for stock options is similar in some ways to lattice models in that it considers many different combinations of stock price changes.

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