Monte Carlo Simulation Definition

Monte Carlo Simulation

Monte Carlo simulation is a stochastic modeling technique that involves making probabilistic forecasts through multiple statistical trials or simulations. This type of analysis and calculation is named after Monte Carlo, the city in Monaco which is famed for its gambling casinos. Big companies such as pharmaceutical corporations use this analytical method to work out riskiness and probable returns on new projects. Investment fund managers also use Monte Carlo methods to project and analyze potential investment risks and returns. Monte Carlo simulation is computationally intense, but the increasing power of modern computers has enabled a more widespread exposure to this type of analysis. Monte Carlo techniques are now prevalent in basic financial planning and retirement planning. Like any modeling technique, Monte Carlo projections do not provide a fail-safe, accurate picture of the future. Monte Carlo results may be used as one factor among many in a given decision making process.

John Bogle Recommends Federal Standard of Fiduciary Duty for Money Managers

Speaking at an industry conference this past week, Vanguard founder John Bogle suggested that all money managers should be subject to a federal standard of fiduciary duty. Bogle believes that some money managers have been taking advantage of their positions at the expense of the shareholders whose interests they presumably represent. Bogle also suggested that the mutual fund industry is leaning too heavily on past returns and, as a result, that Monte Carlo simulations should be abandoned...

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Monte Carlo Simulation