Monte Carlo Simulation in Risk Analysis of Investment Projects

Abstract

At present time, when the rate of risk is increasing, achieving higher quality of investment decision-making by integrating risk and uncertainty factors could positively affect economical results and firm's prosperity. Firstly this article characterizes shortcomings of investment decision making connected with over optimism of people, preparing and evaluating investment projects. Important tool, which could contribute to removing, or at least weakening of these shortcomings, represents Monte Carlo simulation. To description of content Monte Carlo simulation in framework of risk analysis, its problem aspects, advantages and disadvantages is devoted main part of the article. The practical illustration of solving real investment problem from the field of oil industry through Monte Carlo simulation is also involved.investment decision-making, risk analysis, Monte Carlo simulation