Understanding Dynamic Financial Modeling in GoldSim

Dynamic simulation allows you to develop a representation of a financial system, and then observe that system’s evolution and performance over a specified period of time.

The primary advantages of dynamic simulation are:

• The system can evolve into any feasible state and its properties can change suddenly or gradually as the simulation progresses; and

• The system can be affected by random (stochastic) processes and events, which may be either internal (e.g., purchases, sales) or external (interest rate changes).

In order to run a dynamic simulation, you must specify the duration of the simulation (e.g., 1 month, 1 year) and the length of the timesteps that you will use (i.e., the degree to which time will be discretized).

The specified number of timesteps is the minimum number of times that GoldSim will recalculate and update all of the elements in the model. The number of timesteps required to accurately model a system depends to a large extent on how you’ve built your model.

GoldSim will automatically interrupt the simulation and force it to update (i.e., insert a timestep) under certain circumstances (e.g., when an option expires and is automatically exercised).

Note: Details of GoldSim's dynamic timestepping algorithm, including a discussion of selecting the proper timestep for a model, are presented in Appendix F of the GoldSim User's Guide.