How and when to use MCS?

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Debbie Keller
Answered 4 months, 2 weeks ago
<p>One of the most common ways to estimate risk is the use of a Monte Carlo simulation (MCS). For example, to calculate the value at risk (VaR) of a portfolio, we can run a Monte Carlo simulation that attempts to predict the worst likely loss for a portfolio given a confidence interval over a specified time horizon (we always need to specify two conditions for VaR: confidence and horizon).&nbsp;</p><p id="isPasted">A Monte Carlo simulation is&nbsp;an attempt to predict the future&nbsp;many times over. At the end of the simulation, thousands or millions of "random trials" produce a distribution of outcomes that can …</p>