What are monte carlo simulations?

A monte carlo simulation is like playing a game with dice to guess what might happen, but instead of just one roll, you do it a lot so you can see all the possibilities.

Imagine you have a bag of 100 marbles, some red, some blue. You want to know how many red ones there are, but you don’t want to count them all. So you pull out a marble, note its color, and put it back. You do this many times, like 50 or 100 times. Then you guess, based on what you saw, how many red marbles are in the bag.

That’s basically what a monte carlo simulation does. It uses random choices (like rolling dice or picking marbles) to model real-life situations, especially when things can go different ways. Instead of knowing exactly what will happen, it shows you all the possible outcomes, and how likely each one is.

Real life has a lot of chances and unknowns. A monte carlo simulation helps you see what might happen in those uncertain situations by trying out lots of different possibilities, like guessing how many red marbles are in the bag just by playing the marble game over and over.