Quantitative Portfolio Management

Chapter 7Simulation

What happens if a big asteroid hits Earth? Judging from realistic simulations involving a sledge hammer and a common laboratory frog, we can assume it will be pretty bad.

Dave Barry

Computer simulation is a digital modeling of a deterministic or random process, which would be expensive or impossible to set up in reality. Simulations have been used in many fields, most famously starting with physicists simulating nuclear detonation for the Manhattan project. The design of the early nuclear weapons was helped by ENIAC, the Electronic Numerical Integrator and Computer, a 60,000 lbs machine consuming 150 KW of power and performing 50,000 instructions per second.¹ During the same time, the Soviet nuclear effort did not have access to comparable computing power, and the weapon research was aided by analytical calculations, spying, and testing.²

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1. 1   https://www.atomicheritage.org/history/computing-and-manhattan-project.
2. 2   The first Soviet plutonium bomb RDS-1 was detonated 4 years after the first test of a similar device in Alamogordo, NM in 1945. The author's grandfather was a Soviet military engineer overseeing the first nuclear tests at the Semipalatinsk site in Kazakhstan in 1949: https://ru.wikipedia.org/wiki/Малютов,_Борис_Михайлович. General Malyutov's first paid job, as an elementary school student from a poor peasant family in rural Central Russia, was tutoring his more fortunate classmates in math for food.

A simulation is based on ...