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    Monte Carlo Simulation

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    Chayan Sen
    Monte Carlo simulation is a technique that uses random numbers and probability distributions to simulate real-world processes. It involves setting up probability distributions for the variables being analyzed, building cumulative probability distributions for each variable, generating random numbers to assign values to each variable, running the simulation experiment by sampling randomly, repeating this process for the required number of runs, and analyzing the results. As an example, a computer store manager uses Monte Carlo simulation to determine the optimal number of laptops to order each week by simulating past sales data over 15 weeks using random numbers.

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    Monte Carlo Simulation

    Uploaded by

    Chayan Sen
    114 views6 pages
    Monte Carlo simulation is a technique that uses random numbers and probability distributions to simulate real-world processes. It involves setting up probability distributions for the variables being analyzed, building cumulative probability distributions for each variable, generating random numbers to assign values to each variable, running the simulation experiment by sampling randomly, repeating this process for the required number of runs, and analyzing the results. As an example, a computer store manager uses Monte Carlo simulation to determine the optimal number of laptops to order each week by simulating past sales data over 15 weeks using random numbers.

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    Monte Carlo simulation is a technique that uses random numbers and probability distributions to simulate real-world processes. It involves setting up probability distributions for the variables being analyzed, building cumulative probability distributions for each variable, generating random numbers to assign values to each variable, running the simulation experiment by sampling randomly, repeating this process for the required number of runs, and analyzing the results. As an example, a computer store manager uses Monte Carlo simulation to determine the optimal number of laptops to order each week by simulating past sales data over 15 weeks using random numbers.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    114 views6 pages

    Monte Carlo Simulation

    Uploaded by

    Chayan Sen
    Monte Carlo simulation is a technique that uses random numbers and probability distributions to simulate real-world processes. It involves setting up probability distributions for the variables being analyzed, building cumulative probability distributions for each variable, generating random numbers to assign values to each variable, running the simulation experiment by sampling randomly, repeating this process for the required number of runs, and analyzing the results. As an example, a computer store manager uses Monte Carlo simulation to determine the optimal number of laptops to order each week by simulating past sales data over 15 weeks using random numbers.

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    Monte Carlo Simulation

    The principle behind the Monte Carlo


    simulation technique is representative of the
    given system under analysis by a system
    described by some known probability
    distribution and then drawing random
    samples from probability distribution by
    means of random numbers.
    Random numbers between 00 and 99 are
    used to obtain values of random variables
    that have a known discrete probability
    distribution in which the random variables of
    interest can assume one of a finite number of
    different values.
    The Monte Carlo simulation steps
    1. Setting up a probability distribution for variables to be
    analysed.
    2. Building a cumulative probability distribution for each
    random variable.
    3. Generate random numbers. Assign an appropriate set of
    random numbers to represent value or range (interval) of
    values for each random variable.
    4. Conduct the simulation experiment by means of random
    sampling
    5. Repeat step 4 until the required number of simulation
    runs has been generated
    6. Design and implement a course of action and maintain
    control
    Example
    The manager of computer world, a store that
    sells computers and related equipment, is
    attempting to determine how many laptops
    the store should order each week. A laptop
    sells gives the profit of Rs. 4300. The number
    of laptop demanded each week ranges from 0
    to 4.
    From past sales records, the manager has
    determined probability of demand for laptops
    for the past 100 weeks.
    Demand: 0 1 2 3 4
    Frequency: 20 40 20 10 10
    Simulate the demand of 15 weeks from the
    following random numbers: 39, 45, 72, 53, 37,
    02, 87, 98, 10, 47, 93, 21, 95, 15, 69.

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