Monte Carlo Simulations: An overview with the help of R package

Abstract

Monte Carlo simulation method was introduced by John von Neumann and Stanislaw Ulam during 1940s. It was linked to the casino city and its name was adopted for the method. Monte Carlo methods are used in different fields such as Finance, Biological and Physical Sciences.  Monte Carlo simulations are useful when we deal with uncertainty and try to estimate or predict the parameter of interest such as future stock price. It deals with estimating the parameter of interest by generating number of random samples through simulation using software package such as Microsoft Excel or programming languages such as R or Python. This paper provides an overview of Monte Carlo methods and construction of sample Monte Carlo simulation using R open source software package.