Chapter 73. Introduction to Monte Carlo simulation

Questions answered in this chapter:

  • Who uses Monte Carlo simulation?

  • What happens when I type =RAND() in a cell?

  • How can I simulate values of a discrete random variable?

  • How can I simulate values of a normal random variable?

  • How can a greeting card company determine how many cards to produce?

Data analysts would like to estimate the probabilities of uncertain events accurately. For example, what is the probability that a new product’s cash flows will have a positive net present value (NPV)? What is the risk factor of an investment portfolio? Monte Carlo simulation enables you to model situations that present uncertainty and then play them out on a computer thousands of times.

Note

The term Monte Carlo ...

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