A Monte Carlo simulation can be used to tackle a range of problems in virtually every field such as finance, engineering, supply chain, and science. It is also referred to as a multiple probability simulation.
The key things that one needs to remember about Monte Carlo simulations are:-
A Monte Carlo simulation is a model used to predict the probability of different outcomes when the intervention of random variables is present.Monte Carlo simulations help to explain the impact of risk and uncertainty in prediction and forecasting models.
A variety of fields utilize Monte Carlo simulations, including finance, engineering, supply chain, and science.
The basis of a Monte Carlo simulation involves assigning multiple values to an uncertain variable to achieve multiple results and then averaging the results to obtain an estimate.
Monte Carlo simulations assume perfectly efficient markets.