Simulate random variables using the inversion method and basic Monte Carlo techniques.
Free CAS MAS-I (Modern Actuarial Statistics I) lesson in Probability Models. 8 min read, ~1,201 words.
Inversion method: if, then has CDF. Works for any, continuous or discrete. Monte Carlo mean estimator:; unbiased, with standard error. Convergence rate is: to halve the error you quadruple the sample. Antithetic variates pair with and cut variance when is monotone in. Control variates and stratified sampling reduce variance further...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- A7
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