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Monte Carlo Simulation

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Monte Carlo Simulation

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ShockedFor each uncertain variable (one that has a range of possible values), you define the possible values with a probability distribution. The type of distribution you select is based on the conditions surrounding that variable. Distribution types include: Normal, Triangular, Uniform or Lognomal

When you run the monte carlo simulation, which randomly generates values for uncertain variables over and over to simulate a model, WHAT DISTRIBUTION YOU USE AND WHY?  What would happen if other distribution type is used?

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The distribution used is the normal distribution because it is assumed under the portfolio optimization that the standard deviation of returns is normally distributed around the average return. i.e. it is the same below and above the average. 
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Excel templates and solutions matched for Monte Carlo Simulation:

Solutions: Portfolio Optimization Monte Carlo Analysis Add-in Monte Carlo Simulation Mac Monte Carlo Simulation Risk Simulation Risk Analysis Tools
Categories: Risk Analysis