You are running a Monte Carlo simulation to price a portfolio of options.When generating random numbers for use in the simulation:
A.The stratified sampling method eliminates extreme observations.
B.A truly random number generator would avoid clustered observations.
C.A congruential pseudorandom number generator creates sequences converging to a constant value.
D.The Latin hypercube sampling method ensures that all strata are sufficiently well-represented.
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Answer:D
Explanation:The stratified sampling method in random number generation divides the population into groups,called strata,
with similar characteristics and then attempts to distribute the group of random numbers across all the strata.By doing so,
the method tries to ensure that extreme observations will be incorporated into the sample.
The Latin hypercube sampling method is an enhanced version of the basic stratified sampling method which reduces the number of times each particular random number is generated and therefore,
ensures that all strata included in the population are sufficiently well-represented.