Simulation 13


Monte Carlo simulation and other open-form techniques will become the basis for measuring risk in large portfolios. In the past, the goal was to obtain closed-form solutions, equations that pre-ordained the answer once the variables were filled in. Open-form techniques, which have only become feasible with the advent of computers, do not produce a single predetermined result. They generate a whole distribution of possible outcomes, each of which has allowed the variables to migrate within predefined limits. Open-form techniques are a better choice where there are many variables that influence the outcome and when those variables ...

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