Monte-Carlo Simulations Revised: A Reply to Arqus

Sabrina Dorn ()

No Ifo Working Paper No. 73, Ifo Working Paper Series from Ifo Institute for Economic Research at the University of Munich

Abstract: This contribution revises Monte-Carlo based simulation techniques as used in BusinessTaxation and Accounting literature, most prominently proposed by fellows ofTherefore, we focus on a methodically orientated discussion. Our results suggestthe standard approach leads to biased estimates of expected discounted tax paymentsassuming cash flow uncertainty and incomplete loss-offset regulations. We built upcritique by giving an analytical expression for expected discounted tax paymentsformulating the structure of probability weighted tax states in the future conditionalcash flows above or be-low zero. Consequently, this enables us to evaluate the resultsobtained from the standard Monte-Carlo approach within a numerical analysis.

Keywords: Arqus; cash flow uncertainty; limited loss-offset; Monte-Carlo simulations (search for similar items in EconPapers)
JEL-codes: G31 H25 K34 (search for similar items in EconPapers)
Date: 2009

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