Monte Carlo simulation / Monte Carlo method refers to a computerized mathematical technique which allows individuals to account for risks in qualitative analysis and come up with decisions. Probability distributions stand more real in explaining uncertainty in variable of risk analysis. In using probability distributions, variables bear different probability of different outcomes happening. Based on number of the uncertainties and their specified range, Monte Carlo simulation may involve thousands and more recalculations before it is finished, which will in the end come up with possible outcome values. It then calculate results again and again, every moment using a different set of random value from probability functions. Monte Carlo method perform risk analysis by building models of possible outcomes, then substituting with a range of values(a probability distribution) for factors with inherent uncertainty.
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