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Quiz 03 Solution

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18 views1 page

Quiz 03 Solution

Uploaded by

greeninsaf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Riphah International University, Islamabad

SImulation and Modelling Quiz Instructor: Muhammad


Abdullah

Name: ______________________ SAP ID: _____________________

Date: _______________________ Obtained Marks: ______ /10

Q1. (5 marks): Explain in your own words what a Monte Carlo simulation is and provide a simple
example of where it can be used.

ANSWER: A Monte Carlo simulation is a method used to understand the impact of risk and uncertainty
in prediction and forecasting models. It uses random sampling to make numerical estimates. In a
Monte Carlo simulation, a system is modeled with random variables, and many iterations are
performed to calculate different possible outcomes, which helps in estimating the likelihood of
various results.

Example:

One common use of Monte Carlo simulation is in finance to predict stock prices. By simulating
different random paths that stock prices could take in the future, investors can estimate the
probability of different price levels and assess potential risks and returns.

Q2. (5 marks): Scenario: You are a data analyst working at a company that sells products online. You
want to estimate the probability that a customer will make a purchase based on data from their
website visits. To do this, you decide to use a Monte Carlo simulation.

Explain the steps you would take to set up and run the simulation to estimate the probability of a
customer making a purchase.

ANSWER: To estimate the probability of a customer making a purchase using a Monte Carlo
simulation, I would start by defining variables that may impact buying behavior, such as the number
of pages visited, time spent on the site, and past purchases. Using historical data, I’d calculate initial
probabilities for each customer action and set up parameters to model behaviors realistically. This
step helps assign likely actions to customers as they browse, making the simulation more accurate.

Then, I would run thousands of simulated visits, where each visit randomly follows the assigned
probabilities to determine whether it results in a "purchase" or "no purchase." By analyzing the
results, I would count how many simulated visits ended in a purchase and divide by the total
simulations to estimate the probability of a real customer making a purchase. This approach would
allow the company to predict customer buying behavior better and make data-driven adjustments to
increase sales.

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