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Intro to Monte Carlo Simulation Lab

Rolling Dice using @RISK
v1.0 by Andrew Lucchesi, Spring 01!

Section 1: Intro to Monte Carlo Simulation and @RISK Summary " #he core idea o\$ Monte Carlo methods is to use random samples o\$ parameters %or inputs& to e'plore the behavior o\$ a comple' system or process. #hese simulations are ideal \$or situations involving uncertainty in many dimensions that are too comple' \$or an analytical solution. (Monte Carlo simulation per\$orms ris) analysis by building models o\$ possible results by substituting a range o\$ values*a probability distribution*\$or any \$actor that has inherent uncertainty. It then calculates results over and over, each time using a di\$\$erent set o\$ random values \$rom the probability \$unctions. +epending upon the number o\$ uncertainties and the ranges speci\$ied \$or them, a Monte Carlo simulation could involve thousands or tens o\$ thousands o\$ recalculations be\$ore it is complete. Monte Carlo simulation produces distributions o\$ possible outcome values. ( ,-alisade .or a better idea on how the Monte Carlo Method compares to using a -oint /stimate, watch the video below0 http011www.youtube.com1watch2v3r4oar5e6shs 78IS9 is an /'cel plug,in that allows you to create your model in a spreadsheet, running the simulation through the plug,in. #here are other Monte Carlo /'cel plug,ins, which are similar to 78IS9 as well as separate so\$tware all together \$or Monte Carlo simulation, however, you can download 78IS9 \$or a \$ree wee) trial, and get a student version \$or only :;00 http011www.palisade.com1academic1students.asp

Section 2: Rolling a die with @RISK In this beginner lab we will be using a tool \$or Monte Carlo called 78IS9. 4e<re going to roll a die multiple times and loo) at the distribution o\$ the outcomes \$rom rolling that die. #here are = sides, all e>ually li)ely to occur. #hat ma)es this an integer with a

Step 10 Launch 78IS9 . . #his will hope\$ully ma)e you \$eel a little more com\$ortable managing the 78IS9 ribbon and its \$unctionalities. #his is the shell o\$ our model.uni\$orm distribution. .ill out the spreadsheet li)e mine %below&. Clic)ing on the icon %shown below& will bring up a spreadsheet in /'cel with the ribbon loaded %also below&. Step 0 Construct your spreadsheet.

=&@. .palisade.#he minimum will be 1 and the ma'imum will be = %remember it<s a die weCre modeling&.unction@ dropdown.& Step B0 Choose parameters.com1ris)1monteAcarloAsimulation. Dou can name the bo' i\$ you choose. I\$ you hover over the di\$\$erent options it will give you a short summary on what they<re used \$or.or this %while the bo' ne't to +ie1 is selected& select @+iscrete@ and then @8is)Init5ni\$orm@ on the ne't menu down.Step !0 Create the \$irst distribution. %In\$ormation about a \$ew o\$ these distributions and their uses can be \$ound at http011www. Eotice the \$ormula that is now in the cell is (38is)Int5ni\$orm%1. . 4e want a discrete distribution.asp. ?o to the @Insert .

unctions Arguments bo' will come up that as)s i\$ youwould li)e to enter in a Eame. letCs change the iterations %or number o\$ times we will simulate rolling the die& to . and position in range. .000 \$rom the dropdown bo' .or this \$irst e'ample it will Fust be the result \$rom rolling that one die.I @8is)Gutput.Step . Dour bo' should now have (3yourcell%\$or me CB&J8is)Gutput%&H . 4ith the cell selected go to the (Insert . %#hese are optional.0 Identi\$y the outcome cell.unctionH dropdown and select @Gutput@ .& Step =0 Choose your iterations. 8ange name. so I<m leaving them blan) and selecting G9.inally.@ A . . Select the cell ne't to (Gutcome1H and enter %in my case& (3CBH or whatever cell that holds the distribution you made earlier for Die1 .

Step 60 SimulateK Select (Start SimulationH and it will run the simulation once %with . #his again shows the shape. standard deviation.000 rolls. . mean %in this case 6&. all sorts o\$ good data will be there. including the mean.&. and so on. #o do that letCs Fust drag +ie 1 to +ie to copy it %it will automatically rename it \$or that cell&. 8is)Gutput&. on the side bar.H Eow we will need to indicate the output cell the same way we did earlier but in the cell ne't to Gutcome %Input . variance. or replications&.unction. Step !0 8un the simulationK Dou should now have an output chart depicting a normal distribution \$rom adding these random variables. Step 0 Create your outcome cell. and so \$orth. A window should pop up ne't to the outcome cell displaying them uni\$ormly between 1 and =. Section 3: Rolling 2 die Eow what i\$ we want to roll li)e2 die. and see what that outcome would loo) Step 10 Create the same properties \$or +ie as we did previously \$or die 1. Ee't to the graph. In the Gutcome cell add the two cells ne't to +ie1 and +ie (3yourcell\$or+ie1%\$or me CB& J yourcell\$or+ie %\$or me C. add the results. standard variation. Gutput.

.000 times. Instead o\$ doing it that way manually. !. . there are si' di\$\$erent ways that the dice could sum to seven.or e'ample. Lowever \$or rolling die .Section 4: Conclusion 8olling a die . so the probability o\$ rolling seven is e>ual to =1!=3.1=6. .000 times through the simulation proved that it<s Fust as li)ely to land on 1 as it is .000 times. 4ith more comple' models you could see how this could be . or = %assuming there<s nothing wrong with the die o\$ course&. the Monte Carlo simulated throwing dice . #his picture shows the probability o\$ a particular outcome. B. we see the probability o\$ every number that could be e>ualed in the != di\$\$erent combinations o\$ dice rolls.

com1ris)1monteAcarloAsimulation.palisade.com1monte. optimiMing ris) management in decision ma)ing. Nim ?rayson http011www.carlo.goldsim.help\$ulK In dealing with uncertainty in many directions.solver. References: +r.simulation.overview .asp http011www. this can help Fudge di\$\$erent possible scenarios and ris)s.com14eb1Introduction1-robabilistic1MonteCarlo1 http011www.