A method of pricing derivatives by simulating the evolution of the underlying variable (or variables) many times over. This method provides a range of possible outcomes and the probabilities that they will occur for any choice of action. The average outcome of the simulation gives an approximation of the derivative’s value. Monte Carlo is useful in the valuation of complex derivatives for which exact analytical solutions have not been found; otherwise, it can be highly computationally intensive. Monte Carlo simulation can also be applied to a portfolio of instruments, rather than a single instrument, to estimate the value-at-risk (VaR) of that portfolio.