Definition for : Monte Carlo simulation

Monte Carlo simulation is an elaborate variation of Scenario analysis, based on sophisticated mathematical tools and software. It consists of isolating a number of the project's key variables or Value drivers, such as Asset turnover or margins, and allocating a probability distribution to each. All the assumptions about distributions of possible outcomes are entered into a spreadsheet. The model then randomly samples from a table of pre-determined probability distributions in order to identify the probability of each result.
(See Chapter 31 Valuation techniques of the Vernimmen)
To know more about it, look at what we have already written on this subject