From the course: Advanced Python in Excel for Finance: A Hands-On Approach
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Simulation models
From the course: Advanced Python in Excel for Finance: A Hands-On Approach
Simulation models
- [Tutor] We'll now dive into the world of Monte Carlo Simulations, a powerful tool for understanding and assessing financial risk. Let's start at the beginning. What are Monte Carlo simulations and why are they crucial for financial risk assessment? Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables, as in the market. It's a technique used to understand the impact of risk and uncertainty in prediction and forecasting models. By employing random sampling and statistical modeling, these simulations offer a robust framework for predicting future market behaviors and assessing risk. With a solid understanding of the Monte Carlo method, we'll move on to building our first simulation model. We'll cover setting initial parameters, generating random variables to model uncertainty and running simulations to project future price pathways. So once you are in Excel, we can now…
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