Monte Carlo simulation for risk assessment

[Jimmy-xavier]

Summary

Monte Carlo simulation is widely used in financial risk management to forecast potential losses or gains. This statistical method models the uncertainties in financial markets by simulating diverse outcomes based on random variables, which is essential for evaluating risks and making informed decisions in volatile environments.

Description

Some basic concepts of risk management were introduced in the class. I would like to use this opportunity to understand the principles of Monte Carlo simulation and why it is so widely used in various fields.

Monte Carlo simulation predicts possible market scenarios by generating a large number of random samples, thus offering a comprehensive risk assessment. The advantages of Monte Carlo simulation include its ability to handle complex and nonlinear issues, and its capacity to provide insights on potential extreme events. It helps managers and analysts assess the impact of various scenarios, enabling strategic planning and better preparedness for market fluctuations.

Source

1. https://www.investopedia.com/articles/investing/112514/monte-carlo-simulation-basics.asp
2. K. Rezaie, M. S. Amalnik, A. Gereie, B. Ostadi, and M. Shakhseniaee, “Using extended Monte Carlo simulation method for the improvement of risk management: Consideration of relationships between uncertainties,” Applied Mathematics and Computation, vol. 190, no. 2, pp. 1492-1501, 2007.
   (https://www.sciencedirect.com/science/article/pii/S0096300307001841)

Others

[LouisTsai-Csie]

@Raccoon103 Could you please give some feedback and resource for this topic if there is any? thank you.

[Rainfrog0609]

Hi TA, I'd like to choose this topic.Thank you!

[cjt-777]

Hello TA, I am interested in this research for my final project.
Can you assign it to me? Thanks.

[LouisTsai-Csie]

@Rainfrog0609 @cjt-777 Hi, this research problem is not proposed by TA but student in this course, we do not recommend taking this research topic, thank you.

We encourage you to find your own research topic.