simulation risk modeling method

Simulation risk modeling method is a risk modeling method that requires a large number of computer-generated "trials" to approximate an answer.

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These methods are relatively robust and flexible, can accommodate complex relationships (e.g., so-called path-dependent relationships commonly found in options pricing), and depend less on simplifying assumptions and standardized probability distributions. The principal advantage over analytic methods is the ability to model virtually any real-world situation to a desired degree of precision. This is often called the Monte Carlo method.



Monte Carlo Method