MIT2_854F10_MonteCarlo

MIT2_854F10_MonteCarlo - Probability Estimation Through the...

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Unformatted text preview: Probability Estimation Through the Indicator Function System Reliability Example With Crystal Ball Same Seed to Compare Alternatives Modeling Correlation Between Random Numbers Option Pricing using Crystal Ball Probability Estimation Through E[I A ] Problem Estimate the probability of event A happening. Method Define an Indicator function I A as the following I A = 1 if event A occurs and 0 otherwise P( A occurs) = E[I A ] Probability Estimation Through E[I A ] Proof : P( A occurs) = E[I A ] since, E[I A ] = 1 * P( A occurs) + 0 * P(A doesnt occur) = P( A occurs) Recitation Probability Estimation Through the Indicator Function System Reliability Example With Crystal Ball Same Seed to Compare Alternatives Modeling Correlation Between Random Numbers Option Pricing using Crystal Ball System Reliability Example A C D B System Reliability Example A C D B Reliability of 90% System Reliability Example A C D B Reliability of 90% Reliability of 85% System Reliability Example A C D B System fails when either 1. A fails, or 2. B, C, and D fail together 3. or both System Reliability Example A C D B See Excel file: Component Failure.xls Recitation...
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MIT2_854F10_MonteCarlo - Probability Estimation Through the...

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