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Ama monte carlo simulation

Zoya Khan (ABC) (800 Points)

24 April 2014

Do You Know: Monte Carlo simulation is named after the city in Monaco, where the primary attractions are casinos that have games of chance. Gambling games, like roulette, dice, and slot machines, exhibit random behavior.

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CA Saroj Kumar (Keen to learn something new every moment) (2588 Points)
Replied 25 April 2014

Monte Carlo methods (or Monte Carlo experiments) are a broad class of computational algorithms that rely on repeated random sampling to obtain numerical results; typically one runs simulations many times over in order to obtain the distribution of an unknown probabilistic entity. The name comes from the resemblance of the technique to the act of playing and recording your results in a real gambling casino. They are often used in physical and mathematical problems and are most useful when it is difficult or impossible to obtain a closed-form expression, or infeasible to apply a deterministic algorithm. Monte Carlo methods are mainly used in three distinct problems classes: optimization, numerical integration and generation of draws from a probability distribution. In physics-related problems, Monte Carlo methods are quite useful for simulating systems with many coupled degrees of freedom, such as fluids, disordered materials, strongly coupled solids, and cellular structures (see cellular Potts model). Other examples include modeling phenomena with significant uncertainty in inputs, such as the calculation of risk in business; and, in math, evaluation of multidimensional definite integrals with complicated boundary conditions. In application to space and oil exploration problems, Monte Carlo-based predictions of failures, cost overruns and schedule overruns are routinely better than human intuition or alternative "soft" methods.[1] The modern version of the Monte Carlo method was invented in the late 1940s by Stanislaw Ulam, while he was working on nuclear weapons projects at the Los Alamos National Laboratory. It was named by Nicholas Metropolis, after the Monte Carlo Casino, where Ulam's uncle often gambled.[2] Immediately after Ulam's breakthrough, John von Neumann understood its importance and programmed the ENIAC computer to carry out Monte Carlo calculations.