14  Monte Carlo simulations

We will restrict our discussion to so-called Monte Carlo simulations. Such simulations start with extracting random numbers which are employed to calculate values from probability distributions that constitute the simulation model. These values can then be used to perform specific calculations and obtain the results we want to study.

Assume you want to simulate values for a variable x given by x = a + b. Variable a follows the uniform probability distribution at the top of figure 14.1, which means that all values between 100 and 500 have the same probability. The area under a probability distribution is always 1. Thus numbers between 0 and 1 can represent different probabilities and areas under the probability distribution ...

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