What is Monte Carlo simulation?
A)It is the process of generating random values for uncertain inputs in a model,computing the output variables of interest,and repeating this process for many trials in order to understand the distribution of the output results.
B)It is a measure of the correlation between two variables X and Y that falls exclusively between the values +1 and -1.
C)It is a ratio of the departure of an estimated parameter from its notional value and its standard error.
D)It is an approach for developing a comprehensive understanding and awareness of the risk associated with a particular variable of interest.

Question

Quizplus · Accepted Answer

Monte Carlo simulation is a method used to understand the behavior of complex systems by generating and analyzing a large number of random samples. It is most commonly used in finance, engineering, and scientific research to determine the likelihood of different outcomes in uncertain scenarios. The process involves creating a mathematical model that includes multiple uncertain inputs, running simulations using random values for these inputs, and then analyzing the results to determine the range of possible outcomes. This allows decision-makers to better understand the risks associated with different choices and make more informed decisions.

What Is Monte Carlo Simulation