The Use And Abuse Of Statistics

Stochastic methods are normally invoked / used to assist with the understanding of risks, when there is uncertainty around a particular outcome. Uncertainty implies that there is a risk that the desired outcome will not be realized. Stochastics and probability theory has long held out the promise to answering this need, but has often been maligned because of its misuse. This paper takes a critical look need for Monte Carlo simulation to project risk evaluation and highlights what is considered to be the fundamental issues that should be thoughtfully considered to avoid the abuse of this technique. The upside of avoiding the abuse of this technique will be the wider acceptance by practitioners that it is a credible technique to quantify this important aspect of valuation.