Definition
Monte Carlo simulation uses repeated random sampling to model the probability of different outcomes in a process with random variables. In finance, it's used for option pricing, portfolio risk analysis, and retirement planning. Running thousands of scenarios provides a distribution of possible results.
Example
A retirement planner runs 10,000 Monte Carlo simulations showing 85% probability that savings last 30 years.
FAQ
What is Monte Carlo Simulation?
A modeling technique using random sampling to predict outcomes.
Why is Monte Carlo Simulation important?
Monte Carlo Simulation helps investors evaluate quantitative analysis and make more informed decisions.