Course Name: Options Volatility Trading: Concepts and Strategies, Section No: 19, Unit No: 16, Unit type: Notebook
Based on this fantastic exercise, I´m wondering why do you apply median instead applying average when you are comparing the stats of all performed strategies (straddles,strangle)? Thanks
Hello Jorge,
The reason for using the median is likely to mitigate the impact of outliers.
Monte Carlo simulations involve running a large number of random trials to obtain numerical results. In the case of P/L (profit or loss) distributions, using the median is a way to account for the potential skewness or asymmetry in the distribution.
The median is less sensitive to extreme values or outliers compared to the mean. If there are a few simulation runs that result in exceptionally high or low profits, these extreme values could disproportionately influence the mean, leading to a less representative measure of central tendency.
By using the median, the analysis focuses on the middle value of the distribution, which can provide a more robust representation of the typical or central outcome.
I hope this helps!