Binomial tree v/s Monte carlo - path dependent CF's

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Sanjay Sachdev

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Cash flows are not path dependent in binomial tree, cash flows at any node do not depend on the path rates took to get to that node.
Whereas, under monte carlo method CF’s are path dependent - anyone please help me to understand this ?
 
You have things backward.
If cash flows are not path dependent, then you can use a binomial tree; you can also use Monte Carlo simulation.
If cash flows are path dependent, then you cannot use a binomial tree; you must use Monte Carlo simulation.
The cash flows modeled in a binomial tree are not path dependent. The cash flows modeled in a Monte Carlo simulation may be either path dependent or path independent: your choice.
 
can u please help me to understand why they’re not path dependent in binomial model ? and why they’re path dependent in Monte carlo model ?
 
Once again: they’re not necessarily path dependent in a Monte Carlo simulation. They may be, and they may not be. You can set up the simulation whichever way you choose.
The point is that in a Monte Carlo simulation, you have a record of how you got to a particular node; in a binomial tree, you do not.
Suppose that you’re looking at the UUUUUUUDDD node at time 10 (7 ups, 3 downs). In the binomial tree, all you know is that you’re at that node; you have no information about how you get there starting from today. In a Monte Carlo simulation you know which one of the 120 possible paths you took to get there, because in the simulation you created the path: U-U-U-D-U-D-U-U-D-U, say. Once there, you can decide whether the value depends on how you got there (path dependent), or merely on where you ended up (path independent).
 
you mean to say - we don’t have record (so as how we get there) in binomial model bcoz we are backward induction - right ?
 
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