Definition of 'Monte Carlo Simulation': Mathematical technique that generates random variables for modeling risk or uncertainty of a certain systems. The random variables or inputs are modeled on the basis of probability distributions such as normal, log normal, etc.
My project:
A stock price of a certain company can either rise or fall in the next period, which is an uncertainty. Monte Carlo Simulation allows us to simulate multiple periods and to find out the final stock price value. The main function utilized is the random variable function where there is a probability (forecasting) where the stock price can either increase X% or decrease Y% for 50:50 probability. Through Excel and Python, we can run total 200 simulations, each 100 periods each to find out the final stock value. We can summarize the 200 simulations by calculating each final stock value's average price, minimum price, and maximum price. Also, we can visualize the data through deducting a histogram.
Monte Carlo Simulation on Excel
Monte Carlo Simulation on Python
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