Risk Simulator is a Monte Carlo simulation, forecasting, optimization, and risk analytics software. It is written in Microsoft .NET C# and functions together with Excel as an add-in. When you have the software installed, simply start Excel and you will see a new menu item called Risk Simulator. If you are using Excel 2013 or Excel 2016, you will see a new tab called Risk Simulator as well as some large icons that you can access. The examples referenced throughout this book use Risk Simulator version 2018 or later, with the following languages: English, Arabic, Chinese (Simplified), Chinese (Traditional), French, German, Italian, Japanese, Korean, Portuguese, Russian, and Spanish.
The different functions or modules in Risk Simulator are briefly described in the list that follows. Note that there are other software applications such as the ROV Modeling Toolkit, Project Economics Analysis Toolkit (PEAT), ROV Employee Stock Options Valuation Toolkit, ROV Compiler, ROV Risk Extractor and Evaluator, ROV BizStats, ROV Modeler, ROV Valuator, ROV Dashboard, and others, also created by Real Options Valuation, Inc. that developed Risk Simulator, and introduced in this book. You can get more information on these tools by visiting www.realoptionsvaluation.com and clicking on the Downloads tab, where you can also view some getting started videos and obtain whitepapers, case studies, and other free models.
The following lists the modules available in the Risk Simulator software.
- The Monte Carlo Simulation module allows you to run simulations in your existing Excel-based models, generate and extract simulation forecasts (distributions of results), perform distributional fitting (automatically finding the best-fitting statistical distribution), compute correlations (maintain relationships among simulated random variables), identify sensitivities (creating tornado and sensitivity charts), test statistical hypotheses (finding statistical differences between pairs of forecasts), run a bootstrap simulation (testing the robustness of result statistics), and run custom and nonparametric simulations (simulations using historical data without specifying any distributions or their parameters for forecasting without data or applying expert opinion forecasts).
- The Analytical Tools module allows you to run segmentation clustering, hypothesis testing, statistical tests of raw data, data diagnostics of technical forecasting assumptions (e.g., heteroskedasticity, multicollinearity, and the like), sensitivity and scenario analyses, overlay chart analysis, spider charts, tornado charts, and many other powerful tools.
- The Forecasting module can be used to generate automatic time-series forecasts (with and without seasonality and trend), multivariate regressions (modeling relationships among variables), nonlinear extrapolations (curve fitting), stochastic processes (random walk, mean-reversion, jump-diffusion, and mixed processes), Box–Jenkins ARIMA (econometric forecasts), Auto ARIMA, basic econometrics and auto-econometrics (modeling relationships and generating forecasts), exponential J-curves, logistic S-curves, GARCH models and its multiple variations (modeling and forecasting volatility), maximum likelihood models for limited dependent variables (Logit, Tobit, and Probit models), Markov chains, trendlines, spline curves, and others.
- The Optimization module is used for optimizing multiple decision variables subject to constraints to maximize or minimize an objective and can be run either as a static optimization, as dynamic and stochastic optimization under uncertainty together with Monte Carlo simulation, or as a stochastic optimization with super speed The software can handle linear and nonlinear optimizations with binary, integer, and continuous variables, as well as generate Markowitz efficient frontiers.
- The Real Options Super Lattice Solver (SLS) module is another standalone software complementing Risk Simulator, for solving simple to complex strategic real options problems, financial options, exotic options, employee stock options, and other options-embedded investment vehicles and contracts.
- The Dynamic Decision Tree module allows users to create and model traditional decision trees, coupled with more advanced analytics including running dynamic simulations, scenarios, sensitivities, minimax computations, risk-based utility functions, and Bayesian analysis.
- The ROV BizStats module covers applied business statistics and business intelligence analysis, from forecasting and data mining to parametric and nonparametric models.
The following sections walk you through the basics of the Simulation Module in Risk Simulator, while subsequent chapters provide more details on the applications of other modules. To follow along, make sure you have Risk Simulator installed on your computer to proceed. Be sure to see the Software Download and Install section at the end of this book for directions on installing your 30-day trial software. Also, note that there are additional hands-on exercises available at the end of certain chapters in which you can get step-by-step instructions on running sample models using Risk Simulator.
