Monte Carlo: from one number to a distribution

An estimate of “€90 a month” hides the uncertainty. Income may fall, health costs may rise — and usually everything changes at the same time.

A Monte Carlo simulation describes each uncertain quantity with a distribution and computes the result in thousands of scenarios. The resulting histogram shows how often the repayment capacity is negative.

Three rules

1. Distributions are based on data, not on intuition.
2. There are enough scenarios for the result to stay stable (here 10,000).
3. The simulation is reproducible: same seed, same result.

In our example the probability of no positive capacity is 33%. See Figure 2.