Micholien

A Monte Carlo simulation gives you the expected outcome of a situation. For example, let's say we want to know the expected (average) value of a dice roll. Assuming that we have no knowledge of statistics, we could just roll the dice 10000 times, record each outcome, and take the average value of each outcome. A Monte Carlo simulation carries out this procedure through a computer program.

This method is regularly applied in finance to calculate expected returns, probabilities of default, and other scenario outcomes.