![]() ![]() Monte Carlo Simulation: Project Appraisal Specifically, a mutual fund manager may use the method to try and establish any downward risk – The risk that liabilities will outgrow the assets, leading to a loss. ![]() For example, a mutual fund manager may use the method to manage assets and liabilities. In finance, we use Monte Carlo simulations to define potential risk. This explains why this method is very useful when the number of random variables is so high that it makes the analysis using ordinary methods very complex. A spread of results is obtained when the model is run hundreds or thousands of times. Monte Carlo simulations involve the creation of a computer-based model into which variabilities and interrelationships between random variables are entered.
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