Monte Carlo Simulations: Advanced Techniques

November 2016 PDF (128 pages)

BVR (editor)

Business Valuation Resources, LLC

In the ongoing search for simple, easy to explain valuation methods, many appraisers have given wide berth to Monte Carlo simulations, fearing their perceived complexity and unsure of their proper implementation. In doing so, valuable insights and metrics may have been missed, potentially at the peril of the appraiser. Essential for practitioners who wish to elevate their valuation analyses for complex assignments, Monte Carlo Simulations: Advanced Techniques is a new report that takes simulations out of the laboratory and into practical application. Experts explain Monte Carlo simulations and how they can be applied to real-life valuation problems and readers will learn how and when to use Monte Carlo simulations, as well as be able to identify pitfalls and prepare for potential problems. 
Categories: methodology

Highlights include:


  • Take your analysis to the next level with a firm, foundational understanding of Monte Carlo simulation as it applies to real-world valuation engagements. This report includes:
    • Details on specific applications
    • Excel workbooks used to generate examples
    • Examples of Monte Carlo simulations for valuation purposes related to contingent earnout and volatility

  • Get ahead of the curve in the valuation profession – Monte Carlo simulations are gaining popularity when other methods are considered “too simple.” They are used to perform what-if scenarios and to explore range of values and other metrics of interest in the presence of uncertainty. This report provides a solid foundation with information you’ll need to successfully perform a Monte Carlo simulation

  • More easily facilitate decision-making – simulate thousands of possible outcomes and identify which variables most affect the outcomes. Monte Carlo exposes sources of uncertainty and addresses non-normally distributed variables and expected interactions as no other valuation technique can
  • Introduction, by Neil J. Beaton
  • Chapter 1.  Why Monte Carlo? by David Dufendach
  • Chapter 2.  Modeling:  Assumptions and Processes, by David Dufendach and Jason Andrews
  • Chapter 3.  Useful Applications and ‘Misapplications’, by David Dufendach and Jason Andrews
  • Chapter 4.  Diagnostics and Interpreting Results, by David Dufendach and Jason Andrews
  • Chapter 5.  Advanced Cases:  Using Monte Carlo for In-Process R&D Valuations, by David Dufendach and Randy Heng
  • Chapter 6.  Using Monte Carlo Simulation to Value Warrants With Down-Round Protection, by Oksana Westerbeke and Jared Hannon
  • Appendix 1.  Monte Carlo in BV:  A Valuable Tool … in the Right Circumstances
  • Appendix 2.  Defending the Use of a Monte Carlo Analysis in Court
  • Appendix 3.  GAAP Issues, by David Dufendach
  • Appendix 4.  Applications of Oracle Crystal Ball in Business Valuation, by Steve Hoye