Contrast simulation to other risk analysis tools What are it

Contrast simulation to other risk analysis tools. What are its advantages and disadvantages? If you were to do an important risk analysis, which tool would you prefer?

Solution

A simulation technique involves the application of a model of a system to analyze the expected behavior or performance of the system.

Mostly simulations are based on some form of Monte Carlo analysis.

Monte Carlo analysis simulates a model’s results many times to provide a statistical distribution of the calculated results.

The advantages of this technique are that it gives a explicit picture of the outcomes and can be used to determine the impact of whatever assumptions on wishes to make. It’s disadvantage is the outcomes are determined by the parameters used in the model.