Monte Carlo methods, or Monte Carlo experiments, are a broad class of computational algorithms

that rely on repeated random sampling to obtain numerical results. The underlying concept is to use
randomness to solve problems that might be deterministic in principle. The name comes from the
Monte Carlo Casino in Monaco, where the primary developer of the method, mathematician
Stanisław Ulam, was inspired by his uncle's gambling habits.

Monte Carlo methods are mainly used in three distinct problem classes: optimization, numerical
integration, and generating draws from a probability distribution. They can also be used to model
phenomena with significant uncertainty in inputs, such as calculating the risk of a nuclear power
plant failure. Monte Carlo methods are often implemented using computer simulations, and they
can provide approximate solutions to problems that are otherwise intractable or too complex to
analyze mathematically.

Monte Carlo methods are widely used in various fields of science, engineering, and mathematics,
such as physics, chemistry, biology, statistics, artificial intelligence, finance, and cryptography. They
have also been applied to social sciences, such as sociology, psychology, and political science. Monte
Carlo methods have been recognized as one of the most important and influential ideas of the 20th
century, and they have enabled many scientific and technological breakthroughs.

Monte Carlo methods also have some limitations and challenges, such as the trade-off between
accuracy and computational cost, the curse of dimensionality, the reliability of random number
generators, and the verification and validation of the results.

Overview

Monte Carlo methods vary, but tend to follow a particular pattern:

Define a domain of possible inputs.

Generate inputs randomly from a probability distribution over the domain.

Perform a deterministic computation of the outputs.

Aggregate the results.

Monte Carlo method applied to approximating the value of π

For example, consider a quadrant (circular sector) inscribed in a unit square. Given that the ratio of
their areas is

4
, the value of π can be approximated using the Monte Carlo method:[1]

Draw a square, then inscribe a quadrant within it.

Uniformly scatter a given number of points over the square.

Count the number of points inside the quadrant, i.e. having a distance from the origin of less than 1.

The ratio of the inside-count and the total-sample-count is an estimate of the ratio of the two areas,

. Multiply the result by 4 to estimate π.

In this procedure, the domain of inputs is the square that circumscribes the quadrant. One can
generate random inputs by scattering grains over the square, then performing a computation on
each input to test whether it falls within the quadrant. Aggregating the results yields our final result,
the approximation of π.

There are two important considerations:

If the points are not uniformly distributed, the approximation will be poor.

The approximation improves as more points are randomly placed in the whole square.

Uses of Monte Carlo methods require large amounts of random numbers, and their use benefitted
greatly from pseudorandom number generators, which are far quicker to use than the tables of
random numbers that had been previously employed.

Application

Monte Carlo methods are often used in physical and mathematical problems and are most useful
when it is difficult or impossible to use other approaches. Monte Carlo methods are mainly used in
three problem classes:[2] optimization, numerical integration, and generating draws from a
probability distribution.

In physics-related problems, Monte Carlo methods are useful for simulating systems with many
coupled degrees of freedom, such as fluids, disordered materials, strongly coupled solids, and
cellular structures (see cellular Potts model, interacting particle systems, McKean–Vlasov processes,
kinetic models of gases).
Other examples include modeling phenomena with significant uncertainty in inputs such as the
calculation of risk in business and, in mathematics, evaluation of multidimensional definite integrals
with complicated boundary conditions. In application to systems engineering problems (space, oil
exploration, aircraft design, etc.), Monte Carlo–based predictions of failure, cost overruns and
schedule overruns are routinely better than human intuition or alternative "soft" methods.[3]

In principle, Monte Carlo methods can be used to solve any problem having a probabilistic
interpretation. By the law of large numbers, integrals described by the expected value of some
random variable can be approximated by taking the empirical mean (a.k.a. the 'sample mean') of
independent samples of the variable. When the probability distribution of the variable is
parameterized, mathematicians often use a Markov chain Monte Carlo (MCMC) sampler.[4][5][6]
The central idea is to design a judicious Markov chain model with a prescribed stationary probability
distribution. That is, in the limit, the samples being generated by the MCMC method will be samples
from the desired (target) distribution.[7][8] By the ergodic theorem, the stationary distribution is
approximated by the empirical measures of the random states of the MCMC sampler.

In other problems, the objective is generating draws from a sequence of probability distributions
satisfying a nonlinear evolution equation. These flows of probability distributions can always be
interpreted as the distributions of the random states of a Markov process whose transition
probabilities depend on the distributions of the current random states (see McKean–Vlasov
processes, nonlinear filtering equation).[9][10] In other instances, a flow of probability distributions
with an increasing level of sampling complexity arise (path spaces models with an increasing time
horizon, Boltzmann–Gibbs measures associated with decreasing temperature parameters, and many
others). These models can also be seen as the evolution of the law of the random states of a
nonlinear Markov chain.[10][11] A natural way to simulate these sophisticated nonlinear Markov
processes is to sample multiple copies of the process, replacing in the evolution equation the
unknown distributions of the random states by the sampled empirical measures. In contrast with
traditional Monte Carlo and MCMC methodologies, these mean-field particle techniques rely on
sequential interacting samples. The terminology mean field reflects the fact that each of the samples
(a.k.a. particles, individuals, walkers, agents, creatures, or phenotypes) interacts with the empirical
measures of the process. When the size of the system tends to infinity, these random empirical
measures converge to the deterministic distribution of the random states of the nonlinear Markov
chain, so that the statistical interaction between particles vanishes.

Simple Monte Carlo

Suppose one wants to know the expected value

{\displaystyle \mu } of a population (and knows that

{\displaystyle \mu } exists), but does not have a formula available to compute it. The simple Monte
Carlo method gives an estimate for
μ

{\displaystyle \mu } by running

{\displaystyle n} simulations and averaging the simulations' results. It has no restrictions on the
probability distribution of the inputs to the simulations, requiring only that the inputs are randomly
generated and are independent of each other and that

{\displaystyle \mu } exists. A sufficiently large

{\displaystyle n} will produce a value for

{\displaystyle m} that is arbitrarily close to

{\displaystyle \mu }; more formally, it will be the case that, for any

>

{\displaystyle \epsilon >0},

{\displaystyle |\mu -m|\leq \epsilon }. [12]

Typically, the algorithm to obtain

{\displaystyle m} is

s = 0;
for i = 1 to n do

run the simulation for the ith time, giving result ri;

s = s + ri;

repeat

m = s / n;

An example

Suppose we want to know how many times we should expect to throw three eight-sided dice for the
total of the dice throws to be at least

{\displaystyle T}. We know the expected value exists. The dice throws are randomly distributed and
independent of each other. So simple Monte Carlo is applicable:

s = 0;

for i = 1 to n do

throw the three dice until T is met or first exceeded; ri = the number of throws;

s = s + ri;

repeat

m = s / n;

If

{\displaystyle n} is large enough,

{\displaystyle m} will be within

{\displaystyle \epsilon } of

{\displaystyle \mu } for any

>

{\displaystyle \epsilon >0}.

General formula

Let

>

{\displaystyle \epsilon =|\mu -m|>0}. Choose the desired confidence level – the percent chance
that, when the Monte Carlo algorithm completes,

{\displaystyle m} is indeed within

{\displaystyle \epsilon } of

{\displaystyle \mu }. Let

{\displaystyle z} be the

{\displaystyle z}-score corresponding to that confidence level.

Let

{\displaystyle s^{2}} be the estimated variance, sometimes called the “sample” variance; it is the
variance of the results obtained from a relatively small number

{\displaystyle k} of “sample” simulations. Choose a

{\displaystyle k}; Driels and Shin observe that “even for sample sizes an order of magnitude lower
than the number required, the calculation of that number is quite stable."[13]

The following algorithm computes

{\displaystyle s^{2}} in one pass while minimizing the possibility that accumulated numerical error
produces erroneous results:[12]

s1 = 0;

run the simulation for the first time, producing result r1;

m1 = r1; //mi is the mean of the first i simulations

for i = 2 to k do

run the simulation for the ith time, producing result ri;

δi = ri - mi−1;

mi = mi-1 + (1/i)δi;

si = si-1 + ((i - 1)/i)(δi)2;

repeat

s2 = sk/(k - 1);

Note that, when the algorithm completes,

{\displaystyle m_{k}} is the mean of the

{\displaystyle k} results.

The value

{\displaystyle n} is sufficiently large when