The Simulation
We now have all the information necessary to run our simulation. The procedure can roughly be described as follows:
Simulate the future stock price for each of the companies
Compute the option’s payoff for the simulated future stock prices
Repeat steps 1 and 2 until you have reached the desired number of trials
Compute the sample mean of the option payoff
Discount at the risk free rate to determine our estimate for the value of the option