Intro_to_Simulation

# Intro_to_Simulation - Intro to Simulation Copyright...

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Intro to Simulation Copyright ® Iordanis Karagiannidis

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FI 455- Intro to Simulation Monte Carlo Simulation Helps to analyze situations that are too complicated to model on a purely theoretical example. Even if we know the exact probability distribution of all independent variables, it is most often hard to figure out the distribution of the dependent variables
An Easy Simulation Total Costs = \$100 + \$15 * Quantity Produced Where: Total Costs = dependent variable Quantity Produced = independent variable If Quantity follows normal probability distribution (mean=\$50, standard deviation=\$10) Then Total Costs will also follow normal probability distribution (mean=\$850, standard deviation=\$150) FI 455- Intro to Simulation

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A Not So Easy Simulation Profit = Sales * Price * (1-variable Costs) – Fixed Costs If Sales follows normal probability distribution If Price follows lognormal probability distribution If Variable Costs follows uniform distribution If Fixed Costs remain constant Then Profit will follow ??? distribution FI 455- Intro to Simulation
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Intro_to_Simulation - Intro to Simulation Copyright...

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