Monte Carlo Method in risk analysis for investment projects

摘要

Risk assessment for environmental projects consists of studying the probability that projects will achieve a satisfactory performance for threshold-values of internal rate of return (IRR) or net present value (NPV). Risk analysis identifies and estimates risks and their level as well as measures considered to mitigate their negative impact. Quantitative risk analysis is performed for estimating the risk of the project by numeric resources. Monte Carlo simulation method can be widely applied in this area due to the advantages recognized both by practitioners and the academic community. By using this method, the distribution of all possible outcomes of an event is generated by analyzing a model several times, each time using random input values selected from the probability distributions considered normal of the components that comprise the model.