Simulate random variables using the inversion method and basic Monte Carlo techniques.
Free CAS MAS-I (Modern Actuarial Statistics I) lesson in Probability Models. 9 min read, ~1,395 words.
Inversion method: if, then has CDF; works for any, continuous or discrete, using the generalized inverse (smallest with ) at jumps. Exponential inversion is the building block for Weibull and Pareto draws. Monte Carlo mean estimator:; unbiased, with standard error. Convergence rate is: to halve the error you quadruple the...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- A7
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