Excel Random Number Generator: Risk Use Cases

Excel’s random number generator is a powerful tool for statistical analysis. Excel has many applications, including the stock market, human psychology experiments and ocean shipping accidents. It can also be used to help with statistical risk research.

The log normal distribution is one of the main distributions used for stock and bond market analysis. A lognormal distribution can be quickly created using an Excel Random Number Generators. This can then be used for calculating Value-at-Risk and pricing a portfolio. This distribution is derived from the natural log of random variables, in this instance price data. It is normal distributed, and because it uses log normal returns instead of currency-denominated return, results from different analyses can easily be compared to other data sets from the same period.

Normal distributions should also be possible with the Excel random number generator, which are widely used in statistical analysis. The familiar bell-shaped curve can also be called the normal curve, Gaussian curve or the normal curve. It is defined by its mean and standard deviation. It is easy to compute portfolio VaR, stock Beta, average age at death of mice, frequency of rain drops per meter, and stock beta from small data sets.

There is a risk when using the normal distribution. Most distributions in nature are not-normal to some degree. The key probabilities for inaccuracy in the distribution’s tails are the ones that can cause it. This “black Swan” problem means that normal daily circumstances allow for normal distributions, but it can be dangerous to use normal distributions in mission-critical or life-dependent scenarios. This is an example of “fat tails”, and what happens when you underestimate large losses or the frequency of them.

Random number generation has many uses. These are only two examples of statistical distributions that can be generated by an Excel random generator.

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