Quants

jravi044
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Joined: Fri Jan 27, 2017 8:05 am

Quants

Postby jravi044 » Thu May 04, 2017 11:11 am

Question : Suppose that the 95% confidence interval for the output of ending capital is evaluated as ($85.50, $ 92.40) for a simulation run with 50 scenarios. In addition, the simulation resulted in a mean ending capital amount of $88.95 with a standard deviation of $9.5. Now you want to improve the accuracy of this confidence interval by running a simulation of 200 scenarios. What is the new 95% confidence interval with a simulation of 200 scenarios using the same mean and SD from the model with 50 scenarios?


Answer: When four times the number of scenarios is generated, the range of the 95% CI will be cut in half. Thus a quick calculation is to just divide the $3.45 distance from the mean from the 50 scenarios run by two. And add and subtract this distant from the mean of $88.95. Therefore, 3.45/2 = 1.725
New CI = (88.95 – 1.725, 88.95 + 1.725) = (87.225, 90.675)

Doubt: in the above answer from where $3.45 has came?
please explain the logic?

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