Monte Carlo simulation | Free template

Monte Carlo simulation is a free template that can be used to make a simulation of a real system to study and analyze the probable outcome.

Simulation is an attempt to describe a real system with its properties, appearance and impact with a computer based model. The purpose of an economic simulation is to mimic a real situation mathematically, analyze and then draw conclusions about the decision to be taken based on the results of the simulation.

Simulations mean that we don´t have to touch the real system or to test something in reality to obtain information on the outcome for a specific decision. Simulation does not involve any optimization, but is more of an examination of possible outcomes for a decision. The advantage of simulation is that you can explore very complex mathematical problem that can´t be solved with standard mathematical models. A simulation involves that the following activities shall be implemented:
1. Identify and define the problem or decision situation
2. Identify the variables that are associated with the problem or decision situation
3. Construct a mathematical model
4. Set up possible courses of actions or decisions
5. Start the experiment
6. Analyze the results
7. Select the alternatives or decisions to be implemented

Simulation is simple and flexible despite the very complex problems that can be analyzed. In a simulation you can use whatever probability distribution you want and outcomes far in the future can be calculated quickly. Simulation allows sensitivity analysis, does not interact with real systems and can be used to study the interactive effects between variables.

Monte Carlo simulation is a simulation model that makes use of probabilities and chance to simulate the elements that have a random behavior. Monte Carlo simulation is models modeling opportunity and risk through random selection.

To do a Monte Carlo simulation the following steps must be performed to implement an experiment with probability:
1. Create a probability distribution for the variables
2. Create a cumulative probability distribution for each variable
3. Create a range of random numbers for each variable
4. Generate random numbers
5. Simulate a series of trials or experiments
You can use this template to make a Monte Carlo simulation of a real problem, in this template we have used a lottery as an example with a variable that consists of a lotto row. Updated: 01/01/2015 | Created by All-templates.biz

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Tags: simulation business calculations probability