Financial Simulation Modeling in Excel

CHARACTERISTICS OF A SIMULATION

Regardless if one is entering into a military simulation or creating a code-based simulation, there are similarities. The starting point for most simulations is the assumptions that go into it. For a military simulation that is preparing for urban warfare, this might include the number of soldiers per unit, the weapons and supplies that each solider carries, the standard and unique training of the soldiers, and the possible buildings, enemies, weather, and so forth that they could encounter. In a financial simulation, such as the corporate default example, you might have characteristics of the companies, such as the industry, regional operating location, historical asset levels, historical liability levels, and so forth.

Once the assumptions of the topic that we are trying to simulate are understood, a method for assembling the system and rules for how the system works are required. In our military simulation example, we would have a training area where the soldiers arrive with all of the training and gear one would expect, and then have an area with buildings and enemies they would expect to face. A mission with an objective would be established, and certain rules might be integrated to help make the simulation as real as possible. For instance, even though a soldier could theoretically leave the simulation area to get around an obstacle, a rule could define the simulation area and state that soldiers are not allowed to go beyond its perimeter. ...