monte carlo analysis

[ZigZag]

Ive been looking for a readable explanation for the idea supporting Monte Carlo analysis.
An article by Jon Witttwer on www.vertex42.com fits the bill. He also writes in the use of EXCEL.
Anyone interested in statistics may find it useful.

 

[jklondon]

top link thanks! I was actually working on something like the SalesForcast system they have provided for my own pet startup project so it was very handy to have something to evaluate my model against...nice..

would be interested to know of practical uses of MCA in Trading actually (that dont require a PHD in Maths please!) ....

 

[ZigZag]

Hi jklondon. I kept seeing M.C. in my in various articles but it was not until i read "Fooled by Randomness" by Nassim Nicholas Taleb that I began to seek out further articles. M.C is used in any scenario ( war games, engineering, business and of course financial) where risk/probability needs to be measured. The easy part , as I see it , is pumping out of probability ratios which of course needs a MC software package. As Jon Whittwer explains in his article the trick is to set up the right parameters for the central formulae and then feed in random numbers into it for the probability outputs.
Taleb has a web site www.etexere.com/fooled.

 

[jklondon]

Hi ZigZag - link dead - this one appears to be the new one : http://www.fooledbyrandomness.com/

Might check out the book - has some interesting feedback on Amazon. Hopefully Jon finishes the article - on of the areas of interest is how to best determine the correct probability distribution to put into the model - as always garbage in - garbage out. Normal distributions look nice but are not always valid.