Monte Carlo Simulations Reveal Probabilistic Outcomes, Assume Efficient Markets
Summary
Monte Carlo simulations generate probabilistic outcomes by assigning random values to variables and averaging results, assuming efficient markets ignoring external factors.
Key Points
- Monte Carlo simulations estimate the likelihood of different outcomes by accounting for random variables
- The simulations assign multiple values to uncertain variables and average the results to obtain estimates
- Monte Carlo simulations assume perfectly efficient markets and ignore external factors like macro trends