FRM Financial Risk Manager Practice Test

A Monte Carlo simulation relies on random sampling to simulate probabilistic results. You can use a Monte Carlo simulation to model stock returns, as well as cost, probability, and project duration. It cannot however, tell you anything about the quality of the inputs used to arrive at the results of the simulation.

Key Takeaway: For instance, one Upward Mobility editor used a Monte Carlo simulation to model the probability that an airline would go bankrupt due to plane crashes with various insurance policies.