Monte Carlo simulations are used to ascertain risk and uncertainty, particularly in fields such as finance, engineering, insurance, oil & gas, and science.
This simulation model is also referred to as multiple probability simulation. For example, a Monte Carlo simulation can be used to understand the likelihood of cost overruns in large-scale projects, or network performance for telecommunications.
When risk analysts undertake a Monte Carlo simulation, they’re trying to figure out all possible outcomes and the probability of each outcome. The technique was created by Stanislaw Ulam, a mathematician by profession, who brought it to life after playing and analyzing several games of solitaire.