Monte Carlo Simulations Now OK For Brokers To Use With Clients
Brokers just received a Valentine in the form of a new regulation permitting them to use investment analysis tools such as Monte Carlo simulations in discussions with clients.
The interpretation of National Association of Securities Dealers Rule 2210, IM-2210-6, takes effect on Feb. 14. The Securities and Exchange Commission gave its blessing to the self regulatory organizations proposal on Sept. 28, 2004.
Previously, NASD members could not make predictions regarding investments or investment strategies. Now, however, they can use analytical investment tools such as Monte Carlo simulations to do so.
Monte Carlo simulations input variables and generate as many as several thousand simulations in an attempt to mimic the randomness of securities markets. The technique differs from a deterministic approach, which selects a non-moving assumption such as an interest rate.