A decision maker is working on a problem that requires her to study the uncertainty surrounding the payoff of an
a. Show how a Monte Carlo simulation could facilitate a sensitivity analysis of the probabilities of the payoffs.
b. Suppose the decision maker is willing to say that each of the three probabilities could be chosen from a uniform distribution between0 and 1. Could you incorporate this information into your simulation? If so, how? If not, explain why not, or what additional information you would need.
Monte Carlo simulation
Monte Carlo simulation is a technique used to understand the impact of risk and uncertainty in financial, project management, cost, and other forecasting models. A Monte Carlo simulator helps one visualize most or all of the potential outcomes to... Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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Question Posted: December 22, 2015 02:05:22