Applications of Simulation-Based Methods in Finance: The Use of ModelRisk Software

  • Hamed HABIBI Faculty of Science and Engineering, Curtin University, Perth
  • Reza HABIBI Iran Banking Institute, Central Bank of Iran, Tehran


This paper has two parts. The first part considers the statistical arbitrage detection using the simulation-based approaches. The statistical arbitrage is the opportunity of attaining gain at future with a high probability with zero investment at the current time. Simulated methods relies on the direct use of three famous theorems in the field of stochastic process, namely (i) the arc-sine laws, (ii) the first passage of time, and (iii) optional sampling theorem. It is very important for investors to use the simulated approaches by user-friendly software like the ModelRisk of Excel which is done in this note. In the second part, the conditional NPVaR (CNPVaR) of a cash flow stream in the presence of exchange rate risk. The distribution of risk factors are assumed to be a specified location-scale distribution. The application of dynamic programming and quadratic programming are studied.


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How to Cite
HABIBI, Hamed; HABIBI, Reza. Applications of Simulation-Based Methods in Finance: The Use of ModelRisk Software. Journal of Advanced Studies in Finance, [S.l.], v. 7, n. 1, p. 82-89, nov. 2016. ISSN 2068-8393. Available at: <>. Date accessed: 05 july 2022.
Journal of Advanced Studies in Finance


arc-sine laws; CNPVaR; dynamic and quadratic programming; exchange rate risk; first passage of time; optional sampling theorem; statistical arbitrage