SimpleMC2.cpp

#include "SimpleMC2.h"
#include "Random1.h"
#include <cmath>

// the basic math functions should be in
// namespace std but aren’t in VCPP6
#if !defined(_MSC_VER)
using namespace std;
#endif

double SimpleMonteCarlo2(const PayOff& thePayOff,
			 double Expiry,
			 double Spot,
			 double Vol,
			 double r,
			 unsigned long NumberOfPaths) {
  double variance = Vol * Vol * Expiry;
  double rootVariance = sqrt(variance);
  double itoCorrection = -0.5 * variance;

  double movedSpot = Spot * exp(r * Expiry + itoCorrection);
  double thisSpot;
  double runningSum = 0;

  for (unsigned long i = 0; i < NumberOfPaths; i++) {
    double thisGaussian = getOneGaussianByBoxMuller();
    thisSpot = movedSpot * exp(rootVariance * thisGaussian);
    double thisPayOff = thePayOff(thisSpot);
    runningSum += thisPayOff;
  }

  double mean = runningSum / NumberOfPaths;
  mean *= exp(-r * Expiry);
  return mean;
}