(a) Present two examples in finance and two in econometrics

(ideally other than those listed in this chapter!) of situations where a simulation approach would be desirable. Explain in each case why simulations are useful.

(b) Distinguish between pure simulation methods and bootstrapping. What are the relative merits of each technique? Therefore, which situations would benefit more from one technique than the other?

(c) What are variance reduction techniques? Describe two such techniques and explain how they are used.

(d) Why is it desirable to conduct simulations using as many replications of the experiment as possible?

(e) How are random numbers generated by a computer?

(f) What are the drawbacks of simulation methods relative to analytical approaches, assuming that the latter are available?