Simulation
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Define simulation in banking context.
Imitation of real processes on computer/paper to study system behaviour without disturbing actual operations.
Why do banks use simulation models?
Study effects of rate/exchange/cost changes on profits before real-world commitment; evidence-based decisions.
What are two time-handling approaches in simulation models?
Fixed increments (periodic systems) and variable increments (event-driven systems like queues).
State the core principle of Monte Carlo simulation.
Vary controllable variables; sample uncontrollable variables from probability distributions using random numbers.
What does DCRDM mnemonic represent in Monte Carlo?
Distribution → Cumulative → Range → Draw → Map.
How is random-number range width calculated in Monte Carlo?
Range width = probability × 100; ensures range matches probability mass.
Why is the method called 'Monte Carlo'?
Named after Monaco casino; gambling tables represent familiar source of random events.
Who formalised Monte Carlo Method and when?
Stanislaw Ulam and John von Neumann during Manhattan Project in 1940s.
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