Monte Carlo VS Historical

Monte Carlo or Historical?

In a discussion between our Senior Quantitative Analyst, and Founder, we address some of the common questions and thoughts behind these two areas.

So, what is Monte Carlo?

Essentially, Monte Carlo is a method of simulating a sufficiently large number of scenarios to apply meaningful metrics on them.

Monte Carlo is the method of simulating several scenarios; the actual simulator that simulates these models is a choice that we have to make. We have to choose which model we want to use to simulate random paths for the portfolio price process.

How does this work alongside Historical?

In comparison to the Monte Carlo, Historical is what it says on the tin.

Taking pure historical data and projecting multiple possible outcomes to give us a better insight as to what the future of a portfolio could look like.

Some prefer Monte Carlo and some prefer Historical, which one are you?

Abraham is the Founder and CEO of Timelineapp. He has authored the Beyond the 4% rule book, written several industry papers and delivered many talks. He holds a master’s degree from Coventry University and an alphabet soup of designations, including the Investment Management Certificate, Chartered Financial Planner and Chartered Wealth Manager.


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