Monte carlo simulations in excel for financial modeling
so , i am learning how to model financial statements in excel and how to introduce some macroecnomic and/or market factors as well as general uncertainty inside the model (i mean assigning a confidence interval for some estimates). i am mainly concerned with the accuracy of the DCF model (you don't say? ;) ) and i want to run a monte carlo simulation to test all the possibilities and get an idea of how the different % match the DCF prices that come out of the model.
problem: this is an absolute nightmare in excel. i mean i can examine manually the different cases with 2 variables moving while everything else is still (and also i can build a 3d graph - a surface- to help me understand the price changes) but when you have 10+ things that are moving i need something more powerful.
in conclusion, how to get it done? are there some plugins to do it (yes i've already tried to google them but all the good ones are very costly)? or do i have to resign myself to some specific software?
Monte Carlo would provide an unnecessary level of precision to your DCF. Keep in mind that you are modeling one company.
evidently i lost something in the way because i thought that accuracy was a key element in the dcf!
Honestly, it really isn't. The key element in the DCF is the quality of your assumptions. You will never, ever, ever use monte carlo when doing a DCF. You don't have a large enough data set. Now get back to your stats homework.
i will
Crystal ball runs Monte Carlo simulations.
I won't comment on whether or not it's worth using for a DCF
Monte Carlo Simulation (Originally Posted: 10/29/2012)
What software is the best to run Monte Carlo Simulations on Excel?
VBA
derp
@risk
http://www.palisade.com/risk/
http://www.r-project.org/
Try Tukhi. Faster and simpler (and cheaper!) than @Risk. http colon slash slash tukhi dot com
@risk
I'm working on a new tool: https://causal.app - happy to give you a demo :)
First Time Running a Monte Carlo Simulation (Originally Posted: 10/30/2012)
I'm tasked with finding the liklihood that a portfolio will drop below a certain value in the next 5 years. Bosses are hands off and I'm just trying to figure it out. Using quantum XL on excel. Any tips. I'm working off a Morningstar Snapshot.
Do you know what Monte Carlo is? Do you know mean, stddev, and type of distribution? If not, do you have historical data to analyze? If not, again, can you find data? Are you comfortable with stats? Meaning, you know which tail to look at for this situation... Do you know PDF vs CDF?
Hard to give tips without knowing where you're at. I have not used "Quantum XL", only @Risk and Crystal Ball...
Yes to all except knowing which tail to look at. But if I successfully run the simulation, I'll have help analyzing it. I'm using Morningstar data.
I really just need help knowing what data is important and what isn't important. I have the basics down.
First, you next to know which of your inputs are random variables. Perhaps you're making widgets, and the expected cost of raw materials is x1_bar. Since x1_bar is a random variable, it must have an underlying distribution and std.dev. Your job would be to find the shape of the distribution and std.dev. (common dist. types would be uniform, triangular, normal, poisson, etc.)
Once you've determined these parameters, you'll develop a model where your program will randomly input values based on the mean, dist. shape, and std.dev.. Usually, 10k iterations is will give you a good indication of which variables play a greater impact (read: greater variance) in determining your portfolio value. In Crystal Ball, it generates 'tornado charts' which are useful for visualizing these variances.
I'm not sure what your analysis could include, but continuing the widget example for manufacturing facility above... they might have the following [somewhat] random variable in their model. -cost of raw materials -selling price -marketing expenses -economic conditions (inflation?)
Hope this gives you some fuel. Good luck!
Search Value at Risk. You are going to have to make a decision whether to use historical data, or assume a distribution (e.g. normal). Both have positives and negatives.
Morningstar Direct has VaR and Expected Shortfall built into it. Give their help desk a call. I assume this is for some kind of asset allocation decision across various funds? If this analysis is for a single fund, then this exercise is useless without the underlying holdings data.
Depending on your need, you can consider conditional VaR (average of losses)
Monte Carlo Help (Originally Posted: 06/29/2009)
So my boss has asked me to use a Monte Carlo simulation for one of the Excel projects that I'm working on. Problem is that none of my colleagues seem to know how to write up the VBA code for the simulation, and my codewriting skills are not good enough yet for me to comfortably dive into writing the code from scratch.
Does anyone know of where I could find a blank Monte Carlo Excel template that I could modify for my own purposes? To that end, I know that OPIM 101 students at Wharton get such a blank template. A friend emailed me the template, but it requires a password to open the file. If anyone could help me with either of these, I would really appreciate it.
Thanks,
check out the Glasserman book- it has a lot of code you can implement.
See if you can find a piece of software called Crystal Ball.
It is an Excel add-in and it does Monte Carlo Simulations automatically for you, and you can choose any probability distribution functions you want.
btw, you can always use the random number generator in Excel 2007: Data - Data Analysis - Random Number Generation.
Crystal Ball is awesome – very user friendly and lets you alter distributions. Excel may be good enough as is. For a dcf, you can build rand functions into the model. You can build an array with 10000 (or whatever) iterations of the value, and calculate the basic statistics.
Thanks for the help.
Using Crystal Ball for Monte Carlo (Originally Posted: 11/30/2006)
Anyone ever use the Crystal Ball program for pricing path-dependent options?
Having trouble with an assignment due tomorrow, and if anyone is familiar with it, I'd like to pick your brain. Thanks.
Always double down on 11... is that any help?
but what's your question
Just a problem with defining forecasts, found someone in class who could help
Just curious, is this a commonly used program?
i've never heard of it. welcome to the diff b/w academia and the real world, i guess.
this is quant stuff. I don't think you're going to find an answer here.
I like this derivatives class, but i dont see myself in any danger of being a quant.
Montecarlo Simulation (Originally Posted: 10/22/2011)
Someone can tell me please where i can find a website that provide with a Montecarlo Simulation software for free?
To my knowledge there is no "software" per se, well I'm sure there are companies who have their proprietary software, but I haven't heard of freeware.
You could write your own (I guess not since you are asking for a pre-made thing) code, or you can try googling a monte carlo code for your particular need. Something along the lines "c++ monte carlo"... But most likely you will not find anything that matches your needs exactly, so some tweaks will have to be done (you better know someone else who can code, if you are not able to).
Never used it but this is an excel add-on you can purchase...
http://www.palisade.com/risk/
You don't need the addon. You can just do it in vanilla excel.
What's vanilla excel?
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