The Dice Game

To learn about risks, we are going to simulate a small financial market comprised of three investments. We can do the simulation with a computer, but it’s more interesting to watch the investments evolve as we roll dice that determine how the investments perform. Three dice simulate three investments. Each roll of all three determines what happens in a “year” in this market. Doing the simulation as a team works well if you have three people. One person rolls the dice, another keeps track of the dice and reads off their values, and a third records the outcomes.

The investments represented by the dice are rather different. One investment meets our intuitive definition of a risky investment like stocks, whereas another resembles Treasuries. ...

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