Monte Carlo Process

Charles Yoe, Ph.D. College of Notre Dame of Maryland

Analytical Solution
Solution meets all criteria of problem
2 + x = 4 x = 2 is a solution that works Some problems have more than one analytical solution x2 = 9

Some problems have no analytical solution

Simulation
Numerical technique used to estimate analytical solutions to a problem
Not an optimization technique, answers what-if questions

Results are not analytical solutions

Analytical solutions are preferred

Monte Carlo Process

Code name for simulations relating to development of atomic bomb
Applied to wide variety of complex problems involving random behavior Procedure that generates values of a random variable based on one or more probability distributions Not simulation method per se

Suppose . . .
You have a variable that varies between 10 and 50
All you know is theoretical maximum and minimum, any number between is equally likely

Monte Carlo Process

Is a process that can generate numbers within that range
According to the rules you specify In this case a min and a max Any number as likely as any other number

Monte Carlo Process

Two steps
Generate a simple random number Transform it into a useful value using a specific probability distribution

Random Number Generation

Pseudorandom Numbers [0,1] Seed = 6721 (any number) Mid-square Method (John von Neumann) (6721)2 = 45171841; r1= 0.1718 (1718)2 = 29515240; r2= 0.5152 (5152)2 = 26543204; r3= 0.5432 etc. More sophisticated methods now used

Transformation (1)
Assume Uniform Distribution, U(a,b) where a = 10 and b = 50
To obtain a value, x, we use x = a + (b - a)u

In this case, x = 10 + 40u

Transformation (2)
Generate U~U(0,1), say u = 0.1718 then
x = 10 +(50 - 10)0.1718 = 16.9 x = 10 +(50 - 10)0.5152 = 30.6 x = 10 +(50 - 10)0.5432 = 31.7, etc. Other distributions are similar but more complex transformations

Some Language
Iteration--one recalculation of the model during a simulation. Uncertain variables are sampled once during each iteration according to their probability distributions
Simulation--technique for calculating a model output value many times with different input values. Purpose is to get complete range of all possible scenarios

Monte Carlo Simulation

Simulation model that uses the Monte Carlo process
Deterministic values in models replaced by distributions Values randomly generated for each probabilistic variable in model and calculations are completed Process repeated desired # times

Monte Carlo Simulation

0.08

0.4

X
0.00 0 10 20 30 40

=
0.0 5.0 8.8 12.5 16.3 20.0

0.02

0.00 0

100

200

300

400

How Many Iterations?

Means often stabilize quickly--few hundred
Estimating probabilities of outcomes takes more Defining tails of output distribution takes many more iterations If extreme events are important it make take many many more

Some Examples
The Monte Carlo process is used for several risk assessments linked to the Clearinghouse
Salmonella http://www.fsis.usda.gov/ophs/risk/index.htm Antimicrobial Resistant Campylobacter http://www.fda.gov/cvm/fda/mappgs/ra/risk.html

The End