An Alterative to Option Pricing
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Expected Value of Promotes
This worksheet generates random draws of up to five variables from correlated normal distributions.
After the desired correlation matrix is inputted, Excel first takes random draws from five independent
normal distributions and then transforms them into correlated distributions.
The process is organized across two sheets:
‘Draws from Uncorrelated’, which generates independent draws, and
‘Draws from Correlated’, which applies the transformation. Both sheets replicate
the procedure 250 times.
All of these steps are ultimately used to calculate the Expected Value of Promotes.
Simulation of Correlated Normal Variables_JV Examples
Expected Returns to Various Components of the Capital Stack
A very similar worksheet follows the same process of generating and transforming random draws
from correlated normal distributions. Again, the calculations are replicated across the
‘Draws from Uncorrelated’ and ‘Draws from Correlated’ sheets 250 times.
In this case, the output is used to calculate the
Expected Returns to Various Components of the Capital Stack.
Simulation of Correlated Normal Variables_Capital Stack Examples