Tuesday, March 30, 2010

For business students: Monte Carlo method demystified with Excel/VBA

As I did my bachelor’s degree in the faculty of Economics and Business Administration of the University of Tartu, the topic of Monte Carlo simulations surfaced a number of times. Looking back, the simplicity of this method, applied in many classes, seems to have been rather unrevealed. As in our university VBA is taught in all faculties, we have taken a look at this business problem, the solution of which at its most involved part comprises of an If embedded inside two For-s. The key to the Excel part of the application logic is calculating the cumulative distribution function from probability density function.

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