ABSTRACT
Monte Carlo simulation is a procedure for mimicking observations on a random variable that permits verification of results that would ordinarily require difficult mathematical calculations or extensive experimentation. The method normally uses computer programs called random number generators. A random number is a number selected from the interval (0,1) in such a way that the probabilities that the number comes from any two subintervals of equal “length” are equal. For example, the probability that the number is in the subinterval (0.1, 0.3) is the same as the probability that the number is in the subinterval (0.5, 0.7). Thus, random numbers are observations on a random variable X having a uniform distribution on the interval (0,1). This means that the probability distribution function (pdf) of X is specified by() f ( x ) = 1 ; 0 < x < 1 = 0 ; elsewhere https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780429124754/be33da89-95f5-45e7-a067-f2fa13b8eb97/content/eq1108.tif"/>
