RiskNormal,

RiskNormal,RiskErf
RiskErfFunctions
Functions
The
TheRiskNormal
RiskNormalfunction
functiongenerates
generatesaarandom
randomvalue
valuefrom
fromthe
thefamous
famousbell-shaped
bell-shapednormal
normaldistribution
distributionwith
withaagiven
givenmean
mean
deviations.
deviation s.The
TheRiskErf
RiskErffunction,
function,named
namedfor forthe
theso-called
so-called"error
"errorfunction"
function"used
usedininmeasurement
measurementtheory,
theory,also
alsogenerates
generatesa
the
thenormal
normaldistribution,
distribution,but
butits
itsmean
meanisisautomatically
automatically0,0,and
andits
itssingle
singleparameter
parameterhhisisrelated
relatedto
tothe
thestandard
standarddeviation
deviationby
b
Therefore,
Therefore, for the purpose of simulation, these two functions are essentially equivalent except that RiskNormalallows
for the purpose of simulation, these two functions are essentially equivalent except that RiskNormal allowsaan
The
Thetwo
twocells
cellsinincolumn
columnBBof
ofthe
thenext
nextsheet
sheetindicate
indicatethe
thepossibilities
possibilitiesfor
forentering
enteringthe
theRiskNormal
RiskNormalfunction,
function,which
whichcancanbe
bed
Define
Define Distributions window or manually. The two arguments are the mean and standard deviation, and the latter mustb
Distributions window or manually. The two arguments are the mean and standard deviation, and the latter must
arguments
argumentscan
canbe beentered
entereddirectly
directlyor
orthey
theycan
canbe
becell-referenced.
cell-referenced.Similarly,
Similarly,the
theRiskErf
RiskErffunction
functionisisillustrated
illustratedinincolumn
columnJ.J
The
Thenormal
normaldistribution
distributionisisjustifiably
justifiablyone
oneofofthe
themost
mostfrequently
frequentlyused
useddistributions
distributionsininsimulation,
simulation,butbutyou
youshould
shouldbe beaware
awar
limitations.
limitations. First, there is no limit on its possible values; they extend from negative infinity to positive infinity. Forall
First, there is no limit on its possible values; they extend from negative infinity to positive infinity. For allpracti
prac
values
valuesbeyond
beyondthree
threestandard
standarddeviations
deviationson oneither
eitherside
sideof ofthe
themean
meanarearevery
veryunlikely,
unlikely,butbutififextreme
extremevalues
values(such
(suchas asnega
nega
produce
produceerrors
errorsorormake
makeno nopractical
practicalsense,
sense,you
youshould
shoulduse
useappropriate
appropriateIFIFlogic
logicto
toavoid
avoidthem
them----or oruse
useaadifferent
differentdistribu
distribu
Second,
Second,and
andpossibly
possiblymore
moreimportant,
important,the thenormal
normaldistribution
distributionisissymmetric.
symmetric.This
Thisisisoften
oftenappropriate,
appropriate,but butififititmakes
makesmormo
application
applicationtotohave
haveaaskewed
skeweddistribution,
distribution,you
youshould
shouldnot
notuseusethe
thenormal
normaldistribution.
distribution.InInthis
thiscase,
case,there
thereare
areaavariety
varietyofofs
(triangular, gamma, Pert, Weibull, to name just a few) that would be more
(triangular, gamma, Pert, Weibull, to name just a few) that would be more appropriate.appropriate.
 tribution with
stribution withaagiven meanmmand
givenmean andstandard
standard
ment
menttheory,
theory,also
alsogenerates
generatesaarandom
randomvalue
valuefrom
from
to the standard deviation by s=1(h*sqrt(2)).
d to the standard deviation by s=1(h*sqrt(2)).
pt that
ept thatRiskNormal
RiskNormalallows
allowsaanonzero
nonzeromean.
mean.
mal function,
rmal function,which
whichcancanbe
bedone
donethrough
throughthe
the
eviation, and the latter must be positive.These
viation, and the latter must be positive. These
tion
tionisisillustrated
illustratedinincolumn
columnJ.J.
tion,
tion,but
butyou
youshould
shouldbe beaware
awareof ofits
itstwo
twopossible
possible
oopositive infinity. For all practical purposes,
positive infinity. For all practical purposes,
extreme
extremevalues
values(such
(suchas asnegative
negativevalues)
values)would
would
mm----or
oruse
useaadifferent
differentdistribution
distributionaltogether.
altogether.
propriate,
propriate,but
butififititmakes
makesmore
moresense
senseininyour
your
sscase,
case, there are a variety of skeweddistributions
there are a variety of skewed distributions
RiskNormal function RiskErf function
#NAME? Mean 1000 #NAME?
#NAME? StdDev 200 #NAME?
RiskErf function
h 0.1
Implied stdDev 7.071068