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Monte Carlo simulation is a statistical method applied in modeling the probability of different outcomes in a problem that cannot be simply solved due to the interference of a random variable. The simulation relies on the repetition of random samples to achieve numerical results. It can be . Monte Carlo simulation isn’t a tool you need to use for every decision. Let’s say you’re planning a trip to Disney World for a family of 4 and you want to compare the costs involved in driving versus flying.
Portfolio Type Asset Classes Tickers. Periodic Adjustment No contribution or withdrawal Contribute fixed amount periodically Withdraw fixed amount periodically Withdraw fixed percentage periodically Rolling average spending rule Geometric spending rule Withdraw based on life expectancy Import cashflows. Inflation Adjusted Yes No. Rolling Average Periods 2 3 4 5. Withdrawal Frequency Monthly Quarterly Annually. Simulation Period in Years 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Use Historical Volatility Yes No.
Use Historical Correlations Yes No. Use Full History Yes No. Start Year For example our Customer table has 20 rows and the Monte Carlo Simulation should do iterations.
Now we can add a new column which will generate a random number between 0 and 1. This is the random draw of the Monte Carlo Simulation.
Now we keep only the rows where [Result] is 1. First you have to add a table to the datamodel which contains a list of numbers from 1 to x iterations. Actually you can't create a list or set in DAX itself, so you have to use Power Query to create a dummy list with our iterations. When you have loaded the dummy table and the customer table into the data model, you can use DAX to do the same steps we have done before, but here it is a bit more compact. Visualize your data The best thing of all this stuff is that now you can use Power BI to do some nice visuals for your result set.
I also expanded it a bit so that you can filter by Customer etc. Click here to explore my model. To evaluate the performance I have done a bigger simulation by using 1.
The result is clear! I hope you enjoyed reading this blog post. Hi Marco, actually i don't have R Benchmarks, but I will create some benchmarks and hand them in here! I'm glad you did the comparison between Dax and Power Query. This will allow us to model the prices of the asset stochastically. To compute future stock prices, we will need to use some sort of a random function in excel. Next, we compute the future log return by adding the drift and volatility together and multiply it by our random number.
This will add a shock to our constant drift due to the fact that the volatility is being randomized. After we can multiply the last price by the exponent of log return we calculated prior.
After this is done, we can autofill to the desired number of days selected by the user and graph the entire series. Hitting the F9 key on your keyboard will continuously update the chart as well.
This workbook is fully automated. Simply fill out the cells highlighted in orange and let VBA do the rest.
I was merely testing the VBA routine but unfortunately to no avail. An expectation is, in the language of pure mathematics , simply an integral with respect to the measure.
What is the risk factor of our investment portfolio?