## structured monte carlo (SMC) approach

missvidlalsare
Good Student
Posts: 14
Joined: Mon Jan 30, 2017 4:05 am

### structured monte carlo (SMC) approach

is there any formula for structured monte carlo (SMC) approach ?? how it is diff from monte carlo ?? and if there is any formula where to use it ?? can you please explain giving any exampe

edupristine
Finance Junkie
Posts: 871
Joined: Wed Apr 09, 2014 6:28 am

### Re: structured monte carlo (SMC) approach

Like the historical simulation, the Monte Carlo simulation is a simulation method where the potential value changes of the risk factors are described by scenarios. In contrast to the historical simulation however, the scenarios are not determined using historical data but with the help of a random process. The random numbers required for this are created by a random number generator and can be transformed into the standard normal distribution by various methods.
In Monte Carlo simulation, it is assumed that there is a normal distribution of risk factor changes with an expected value of zero and a positive variance. The parameters required for the random process can be calculated from historical values ( structured Monte Carlo).