With its understandable explanations of Monte Carlo and step-by-step instructions for Microsoft Excel, Lotus, and @Risk software, this text/software package offers both the instruction and the practice students need to begin solving complex business problems.
It is designed for use as the primary learning tool in a short business simulation course (for advanced undergraduate and MBA students), or as a supplement to courses in investments, corporate finance, management science, marketing strategy, operations management, and actuarial science.

### Table of Contents

PREFACE

1. WHAT IS SIMULATION?

Actual Applications of Simulation / What's Ahead? / Simulation Models Versus Analytic Models

2. RANDOM NUMBERS -- THE BUILDING BLOCKS OF SIMULATION PROBLEMS

3. USING SPREADSHEETS TO PERFORM SIMULATIONS

Example 3.1: The Newsvendor Problem / Finding a Confidence Interval for Expected Profit / How Many Trials Do We Need? / Determination of the Optimal Order Quantity / Using Excel Data Tables to Repeat a Simulation / Performing the Newsvendor Simulation with the Excel Random Number Generator / Problems

4. AN INTRODUCTION TO @RISK

Simulating the Newsvendor Example with @RISK / Explanation of Statistical Results / Conclusions

5. GENERATING NORMAL RANDOM VARIABLES

Simulating Normal Demand with @RISK / Using the Graph Type Icons / Placing Target Values in the Statistics Output / Estimating the Mean and Standard Deviation of a Normal Distribution / Problems

6. APPLICATIONS OF SIMULATION TO CORPORATE FINANCIAL PLANNING

Using the Triangular Distribution to Model Sales / Sensitivity Analysis with Tornado Graphs / Sensitivity Analysis with Scenarios / Alternative Modeling Strategies / Problems

7. SIMULATING A CASH BUDGET

Example 7.1: Cash Budgeting / Problems

8. A SIMULATION APPROACH TO CAPACITY PLANNING

Example 8.1: Wozac Capacity Example / Problems

9. SIMULATION AND BIDDING

Uniform Random Variables / A Bidding Example / Problems

10. DEMING'S FUNNEL EXPERIMENT

Simulating Rule 1 (Don't Touch That Funnel!) / Simulating Rule 2 / Comparison of Rules 1-4 / Lesson of the Funnel Experiment / Mathematical Explanation of the Funnel Experiment / Problems

11. THE TAGUCHI LOSS FUNCTIONS

Using @RISK to Quantify Quality Loss / Problems

12. THE USE OF SIMULATION ON PROJECT MANAGEMENT

The Widgetco Example / Estimating Probability Distribution of Projected Completion Time / Determining the Probability That an Activity is Critical / The Beta Distribution and Project Management / Problems

13. SIMULATING CRAPS (AND OTHER GAMES)

Example 13.1: Simulating Craps / Confidence Interval for Winning at Craps / Problems

14. USING SIMULATION TO DETERMINE OPTIMAL MAINTENANCE POLICIES

Example 14.1 / Problems

15. USING THE WEIBULL DISTRIBUTION TO MODEL MACHINE LIFE

Example 15.1: Simulating Equipment Replacement Decisions / Problems

16. SIMULATING STOCK PRICES AND OPTIONS

Modeling the Price of a Stock / Estimating the Mean and Standard Deviation of Stock Returns from Historical Data / What Is an Option? / Pricing a Call Option / Example 16.1a: Pricing a European Call Option with @RISK / Analyzing a Portfolio of Investments / Example 16.1b: Simulating Portfolio Return / Problems

17. PRICING PATH-DEPENDENT AND EXOTIC OPTIONS

Example 17.1: Pricing a Path Dependent Option / Problems

18. USING IMMUNIZATION TO MANAGE INTEREST RATE RISK

Duration / Convexity / Immunization Against Interest Rate Risk / Example 18.1: Immunization Using Solver / Better Models for Interest Rate Risk / Problems

19. HEDGING WITH FUTURES

Hedging with Futures: The Basics / Modeling Futures Risk with @RISK / Problems

20. MODELING MARKET SHARE

Example 20.1a: Market Share Simulation / Is Advertising Worthwhile? / Example 20.1b: Advertising Effectiveness / To Coupon or Not to Coupon? / Example 20.1c: Should Coke Give Out Coupons? / Problems

21. GENERATING CORRELATED VARIABLES: DESIGNING A NEW PRODUCT

Example 21.1 / Problems

22. SIMULATING SAMPLING PLANS WITH THE HYPERGEOMETRIC DISTRIBUTION

Example 22.1: Simulating a Sampling Plan / Problems

23. SIMULATING INVENTORY MODELS

Example 23.1: Simulating a Periodic Review Inventory System / Problems

24. SIMULATING A SINGLE-SERVER QUEUING SYSTEM

Example 24.1: Queuing Simulation in @RISK / Estimating the Operating Characteristics of a Queuing System / Problems