Monte Carlo

Confidence Bands: Next-Generation Monte Carlo

Marc Odo
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One of the problems with traditional Monte Carlo projections is that it is very iterative process. After establishing the investor’s wealth goals and cash flows, a single portfolio with a forecasted return and risk is chosen. The Monte Carlo process is run and thousands of possible outcomes are calculated. The probability of achieving the client’s goals is presented- for that one portfolio. If the probability of that portfolio reaching the goals is unsatisfactory, it’s back to the drawing board and the whole process is repeated for a different portfolio.

Confidence Bands as an Advanced Monte Carlo Engine by Marc Odo, CFA, CAIA, CFP

Fri, 2010-09-03

This guide will walk you through the steps and rationale for using Zephyr’s AllocationADVISOR’s “Confidence Bands” function.  In short, a Confidence Bands analysis runs a full Monte Carlo analysis for every single portfolio on the efficient frontier and tells the analyst which portfolios have the highest probability of meeting an investor’s goals.


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