What is a Monte Carlo model and what good is it? We’re not
talking a type of car produced by General Motors under the Chevy
nameplate. “Monte Carlo” is the name of a type of mathematical
computer model. A Monte Carlo is merely a tool for figuring out
how risky some particular situation is. It is a method to answer
a question like: “what are the odds that such-and-such event
will happen”. Now a good statistician can calculate an answer to
this kind of question when the circumstances are simple or if
the system that you’re dealing with doesn’t have a lot of forces
that work together to give the final result. But when you’re
faced with a complicated situation that has several processes
that interact with each other, and where luck or chance
determines the outcome of each, then calculating the odds for
how the whole system behaves can be a very difficult task. Let’s
just get some jargon out of the way. To be a little more
technical, any process which has a range of possible outcomes
and where luck is what ultimat