What Monte Carlo Meaning, Applications & Example
Random sampling method for numerical integration and optimization.
What is Monte Carlo?
Monte Carlo is a statistical method used to estimate numerical results through random sampling. It is often used in simulations to model complex systems and processes that are deterministic in nature but involve uncertainty or variability.
Applications of Monte Carlo
- Risk Assessment: Used in finance to evaluate investment risks and pricing options by simulating different market conditions.
- Machine Learning: Helps in the optimization of models and probabilistic inference .
- Physics: Used for simulating particles in systems like fluid dynamics or radiation transport.
Example of Monte Carlo
An example of Monte Carlo simulation is estimating the value of Pi by randomly placing points on a square and counting how many fall within a quarter circle inscribed within it. The ratio of points inside the circle to the total number of points approximates Pi.