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Random Variable
r N (, 2 )
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Example: what is the 95% confidence interval for the ending capital amount from
a simulation run where the number of simulations is 100 (N=100), the mean
ending capital, ( X ), is $110.009, and the standard deviation, s, is $14.798?
$14.798
$14.798
$110.009
1.98
,
$110.009
1.98
$107.079, $112.939
100
100
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4. Simulation models can easily examine effects on output variables when changing
strategies or scenarios.
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201405
69. A quantitative analyst used a simulation to forecast the S&P 500 index value at the end of the
year with an index value of 1,800 at the beginning of the year. He generated 200 scenarios and
calculated the average index value at year-end to be 1,980, with a 95% confidence interval of
[1,940, 2,020]. In order to improve the accuracy of the forecast, the quantitative analyst
increased the number of scenarios to attain a new 95% confidence interval of [1,970, 1,990]
with the same sample mean and the same sample standard deviation. How many scenarios
were used to generate this result?
s
s
A. 400
1980+1.645
2020 1.645
40
200
200
B. 800
s
s
C. 1,600
1980+1.645
1990 1.645
10
N
N
D. 3,200
N 3200
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Estimator Bias
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201405
32.A quantitative risk analyst is comparing the computational efficiency of different
estimators generated using Monte Carlo simulation. Relevant information is
summarized in the following table:
Standard Deviation
Time for generating one
scenario (seconds)
Scenarios
Total time for generating
scenarios (seconds)
Estimator A
0.30
35
Estimator B
0.40
25
Estimator C
0.25
40
Estimator D
0.35
30
20
700
40
1,000
30
1,200
50
1,500
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This random number sequence continues using the same midsquare technique. Eventually,
the middle digits become a small number such as 1 or 0, and the sequence converges and
generates the same numbers over and over again. Therefore, this technique can result in a
very short cycle of random numbers.
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Example
1.
A. 0.3147
B. 0.4852
C. 0.6931
D. 0.9246
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A x n 1
x n A x n 1 m
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Example
2.
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Example
3.
The 95% confidence interval for the output of ending capital is calculated to be
($117.03, $122.97) for a simulation run with 100 scenarios. In addition, the
simulation resulted in a mean ending capital amount of $120 with a standard
deviation of $15. Suppose we want to improve the accuracy of this confidence
interval by running a simulation of 400 scenarios. What is the new 95%
confidence interval with a simulation of 400 scenarios using the same mean and
standard deviations from the model with 100 scenarios?
A.
($117.23, $122.95).
B.
($118.52, $121.48).
C.
($119.02, $121.99).
D.
($119.71, $122.27).
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Example
4.
Suppose you run a simulation to estimate the output of ending wealth for an
investment of $100,000 today over a 30-year time period using random monthly
returns that are assumed to be normally distributed. How does this action create a
discretization error bias?
A. The true probability of the input random returns is unknown and creates the
bias.
B. The true probability of the output ending wealth is unknown and creates the
bias.
C. The assumption that returns are random creates the bias.
D. The assumption that returns occur on a monthly basis in the model instead of
continuously creates the bias.
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Example
5.
B.
C.
D.
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FRM
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