October 2011
Beginner
216 pages
5h 47m
English
Content preview from Financial Simulation Modeling in Excel
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THIS IS JUST THE BEGINNING
In this chapter we introduced many of the basic components of simulations and led up to how they begin to translate into financial implementations. The focus has been on correctly generating pseudorandom numbers, understanding the distributions that we use to transform pseudorandom numbers, showing examples of how to construct a simulation using Excel and VBA as the medium, and eventually how randomness appears in finance via Brownian motion and Wiener processes. Although we have yet to discuss deeper financial applications of the concepts learned in this chapter, the importance of each of these items cannot be understated. No matter how sophisticated and unique the financial simulation being implemented is, if the random number generation algorithm is flawed the results of the simulation will be wrong. Similarly if the wrong distribution is being used the results will also be flawed.
In Chapter 3 we will take the tools and techniques that we have just learned and expand upon them with more complex statistical concepts. The examples will begin to be illustrated through more financially related Model Builders and eventually in later chapters, the concepts will be entirely financially based with supporting Model Builder examples.
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