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Monte Carlo Simulation in Risk Analysis of Investment Projects
[Simulace Monte Carlo v analýze rizika investičních projektů]

Author

Listed:
  • Jiří Fotr
  • Lenka Švecová
  • Ivan Souček
  • Lubomír Pešák

Abstract

At present time, when the rate of risk is increasing, achieving higher quality of investment decision-making by integrating risk and uncertainty factors could positively affect economical results and firm's prosperity. Firstly this article characterizes shortcomings of investment decision making connected with over optimism of people, preparing and evaluating investment projects. Important tool, which could contribute to removing, or at least weakening of these shortcomings, represents Monte Carlo simulation. To description of content Monte Carlo simulation in framework of risk analysis, its problem aspects, advantages and disadvantages is devoted main part of the article. The practical illustration of solving real investment problem from the field of oil industry through Monte Carlo simulation is also involved.

Suggested Citation

  • Jiří Fotr & Lenka Švecová & Ivan Souček & Lubomír Pešák, 2007. "Monte Carlo Simulation in Risk Analysis of Investment Projects [Simulace Monte Carlo v analýze rizika investičních projektů]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2007(2), pages 32-43.
    • Handle: RePEc:prg:jnlaop:v:2007:y:2007:i:2:id:47:p:32-43
    DOI: 10.18267/j.aop.47
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    More about this item

    Keywords

    investment decision-making; risk analysis; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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