Michael C. Ehrhardt
Tool Kit for Monte Carlo Simulation
Overview of this Workbook
This workbook has five workbooks.
Following is a brief description of each worksheet.
The fifth worksheet, "Sim. Summary", contains summary statistics from the simulation.
Creating Simulated Random Variables
Step 1: Load Simtools.xla
Step 2: Decide on distributions for risky variables
If an error box like the picture (which is only a picture and not an actual error message) displayed at the right
appeared when you opened this file, then you have not correctly installed the Excel Add-In,
should close Excel without saving and read the instructions in the file "
Explanation of Simulation.doc
explains how to install
Only open this Excel file,
Ch 12 Tool Kit Simulation.xls
, after you have
This worksheet contains the model used to analyze RIC's new project decision as described in the text.
It is the
same model as in
Ch 12 Tool Kit.xls
," but with a Monte Carlo simulation added.
There are many available
simulation software packages, such as @Risk, but they are not free.
For the analysis in this spreadsheet, we have
used a free package that works very well for simple simulations.
If your model is very complicated, then you
would be better off using one of the commercial packages.
But for simple models, the approach we show in this
spreadsheet will work fine.
We assume that you have correctly installed an Excel Add-In, Simtools.xla, developed by Professor Roger
Myerson at Northwestern University.
If not, then close Excel and read the instructions in the file "
For more information on Simtools, go to the web site
This first worksheet, "Expl.", describes how to create simulated variables to be used as inputs in a financial
The second worksheet, "Model to be Sim.", contains the financial model for which the simulation analysis will be
The third worksheet, "Sim. inputs and outputs," contains the actual simulated values that are used as inputs to
the financial model. It also contains the resulting key outputs from the model. We find that it is convenient to have
inputs and outputs located near one another.
The fourth worksheet, "Run Sim.", explains how to run the simulation. It also contains the actual raw results
from the simulation.
Make sure Simtools is available, using the procedure described in the file "
Explanation of Simulation.do