# Stochastic/finance monte carlo question

When pricing a european option by monte carlo over 30 days for instance, what's the difference between one big 30 day jump vs 30 one day steps?

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You may want to consider reposting your question on quant.stackexchange.com which is specifically devoted to Quantitative Finance. –  Andrey Rekalo Mar 31 '11 at 13:06

You are in effect replacing many detailed paths by their average effect. This changes the answer since pricing options involves applying the non-linear $\max$ or $\min$ operators. If you are trying to compute the answer corresponding to a continuous time model, then you have to take a large enough number of steps.

It may help your intuition to draw two binomial tree models, one with one period and one with two periods and solve them by hand.

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Theoretical option prices are linear averages over paths, in a suitable measure. So there is not necessarily a problem with the idea of replacing an ensemble of detailed paths by an average. –  T.. Oct 26 '10 at 5:08