The Integrated Financial Model and the use of Growth Patterns in Monte Carlo simulation Risk Analysis

Savvakis Savvides

No 2024-03, Development Discussion Papers from JDI Executive Programs

Abstract: Through this paper the author highlights the importance of constructing an integrated financial model and in using growth patterns in projecting the key parameter projections to generate consistent and meaningful scenarios during a Monte Carlo simulation risk analysis application and to avoid and contain the correlation problem. The Integrated Financial Model© by Savvakis C. Savvides was created and tested after many years of expertise of the author in corporate lending and project finance as well as from teaching investment appraisal and risk analysis and the development of several related software. It is argued that to apply Monte Carlo Simulation Risk Analysis in a meaningful manner and to enhance the decision-making process the methodology should not be used “as a toy†but rather in a thoughtful manner that takes into consideration all aspects of a prudently constructed business plan and as this is manifested through an integrated financial model. The use of growth pattern functions for the key risk variables is essential so as to contain the correlation problem and for the simulation to be based on consistent and realistic scenarios.

Keywords: Market analysis; quantity demanded; elasticity of demand; project evaluation; market segmentation; market penetration. (search for similar items in EconPapers)
JEL-codes: D11 D61 H43 L21 M31 (search for similar items in EconPapers)
Pages: 19 Pages
Date: 2024-03-18
New Economics Papers: this item is included in nep-cmp, nep-ppm and nep-rmg
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