What is a Monte Carlo Simulation?
Monte Carlo Simulation is a computer-generated statistical equation used to calculate the uncertainty in a forecast of future events. Instead of using a single value for each variable in a model, it uses many values from historical data and therefore can more accurately illustrate volatility and risk. It is used to provide a more accurate projection of financial needs because it factors in fluctuations in the stock market. The US Government originally developed the Monte Carlo Simulation to predict outcomes of war. It was nicknamed “Monte Carlo” after its similarities to games of chance found in gambling casinos.
