APPENDIX J
Monte Carlo Simulation for Security Investments
THE DUFF & PHELPS February 2009 Valuation Report to the Congressional Oversight Panel (see Appendix D) included a section on Monte Carlo simulation in a technical appendix.1 The first three paragraphs of Appendix J are taken from that section of the Duff & Phelps report. The remainder of this appendix reports on a text run by the authors.
Monte Carlo simulation was developed by scientists working on the Manhattan Project in the 1940s. The essence of the idea is to repeat a process many times, observe the outcome, and use that information to calculate the answer sought. Consider this simple example. A person wants to know what the odds are for each value for the sum of the throw of two ...

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