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Why don’t we use Monte Carlo Simulation for Valuation?
- This topic has 4 replies, 5 voices, and was last updated 4 months ago by
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I remember during my time at SABIC M&A, where we used @RISK to develop Monte Carlo Simulation on Valuation model and the output used to give sufficient data, return metrics distribution and confidence in extreme scenarios for decision making during FID. Don’t you think it is right time now, when we have already witnessed black swan events, to embrace Monte Carlo Simulation?
I think it is a good idea if we have enough data and information. Otherwise scenario (stress) testing is a less sophisticated but useful method.
I use @RISK as an add-on to my valuation work and its MC simulation tool is really useful and relevant for certain industries such as pharma-life science.
I think Monte Carlo Simulation for Valuation this is not suitable for everyone. this is the mean reason cant be used. if you are more know about for this you can go on Wikipedia and read abot monte carlo.
Based on my experience, we only use monte carlo to value complex financial instruments when you need to factor in various variables. For company valuation, to put it in simple way and more reader friendly, especially those without valuation knowledge, the traditional valuation methodology may be more relevant and useful.
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