Article The Monte Carlo Analysis Multivariate Model

T2W Bot

Staff member
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Research analysts use multivariate models to forecast investment outcomes to understand the possibilities surrounding their investment exposures and to better mitigate risks. Monte Carlo analysis is one specific multivariate modeling technique that allows researchers to run multiple trials and define all potential outcomes of an event or investment. Running a Monte Carlo model creates a probability distribution or risk assessment for a given investment or event under review. By comparing results against risk tolerances, managers can decide whether to proceed with certain investments or projects.
Multivariate Models Multivariate models can be thought of as complex, “What if?” scenarios. By changing the value of multiple variables, the modeler can ascertain his or her impact on the estimate being evaluated. These models are used by financial analysts to estimate cash flows and new product ideas. Portfolio managers and financial advisors use these models to determine the impact...

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0007

Senior member
2,376 660
A useful explanation of an important tool for use in risk & P/L assessment. I suspect not much used by retail traders due to its complexity and non-inclusion in standard software trading packages. Monte Carlo very useful for choosing between potential trades (not talking day trades here) wrt likely profitability ie for any given set up and risk scenario you want to take the trade with the most potential profit - MC can help differentiate. Although the author correctly states that MC analysis is named after the place famous for casinos, I believe the term was coined by the brilliant mathematicians in the Manhattan project who liked gambling odds as a pastime. Regret rated article 0 by mistake - wanted to say "10".
 

NVP

Legendary member
37,550 1,999
A useful explanation of an important tool for use in risk & P/L assessment. I suspect not much used by retail traders due to its complexity and non-inclusion in standard software trading packages. Monte Carlo very useful for choosing between potential trades (not talking day trades here) wrt likely profitability ie for any given set up and risk scenario you want to take the trade with the most potential profit - MC can help differentiate. Although the author correctly states that MC analysis is named after the place famous for casinos, I believe the term was coined by the brilliant mathematicians in the Manhattan project who liked gambling odds as a pastime. Regret rated article 0 by mistake - wanted to say "10".

the irony of 0007 reviewing this first is not wasted on us I hope :cool:
 

0007

Senior member
2,376 660
the irony of 0007 reviewing this first is not wasted on us I hope :cool:

Ha ha! Now I come to think of it, that was where I made some of my very best trades. I never did find out what indicators that Blofeldt chap was using!
 
 
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