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» Fed Uses Monte Carlo
   Simulation for Banking
   Stress Tests
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   Academic Symposium
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   Risk Analysis, Applications,
   and Training
» New Book by Wayne Winston
» VAIR Trainings in NYC
» Upcoming Webcasts
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» Hurricane Evacuation Models
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@RISK Modeling Tips
» Using Percentil Distribution
   Parameters
» RiskSimtable to Perform
   Multiple Simulations

@RISK Function
of the Month
» The Binomial Distribution

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A one-day event for users to network, share ideas, and learn new techniques that can help them make better decisions now. Plus, see @RISK 5.5 in action.
Munich 16 June 2009
» Register Now

The 2009 Conference on Risk Analysis, Applications & Training will be held at the Hyatt Regency in Jersey City.
NYC 21-22 October 2009
» Register Now

A one-day forum covering
risk and decision analysis
from all angles specific to the energy sector.
Houston 21 May 2009
» Register Now for the
   Energy Forum

A one-day event for professors, lecturers and post graduate students, presented
without charge .
Houston 22 May 2009
» Call for Papers

» Africa
Johannesburg: 15-17 July 09

» Australia
Sydney: 27-29 May 09
Perth: 10-11 June 09
Melbourne: 1-2 July 09
Sydney: 26-28 August
Brisbane: 23-24 September 09
Perth: 2-3 December 09
Sydney: 16-18 December 09

» Europe
London: 2-4 June 09
London: 7-9 July 09

» Latin America
Lima, Peru: 25-27 mayo 09
Buenos Aires: 17-19 junio 09
Quito: 24-26 junio 09
México D.F.: 6-10 julio 09
Santiago, Chile: 12-14 agosto
Guatemala: 26-28 agosto 09
Panamá: 21-23 septiembre 09

» North America
Houston: 20 May 09
Calgary: 16-17 June 09
Ithaca: 24-25 June 09
San Francisco:
   30 June - 2 July 09
Cincinnati: 14-15 July 09
Saskatoon: 4-6 August 09
Charlotte, NC: 12-13 August
Denver: 19-20 August 09
St. Paul, MN: 2-3 September
Seattle: 15-17 September 09
Toronto: 29-30 September 09
Las Vegas: 6-8 October 09
Chicago: 28-29 October 09
Dallas: 11-13 November 09
Boston: 18-19 November 09
Portland: 2-4 December 09
Atlanta: 15-16 December 09

» Decision-Making and Quantitative Risk Analysis using @RISK
PART I
8-9 June, 1-5pm ET
15-16 June, 11am-3pm ET
8-9 July 9am-1pm ET
13-14 July 9am-1pm ET
10-11 August, 11am-3pm ET
10-11 Sept, 11am-3pm ET
5-6 Oct, 11am-3pm ET
3-4 Nov, 9am-1pm ET
7-8 Dec, 1pm-5pm ET

PART II
15-16 June, 1-5pm ET
22-23 June, 11am-3pm ET
20-21 July, 9am-1pm ET
23-24 July, 9am-1pm ET
17-18 August, 11am-3pm ET
23-24 Sept, 11am-3pm ET
12-13 Oct, 11am-3pm ET
9-10 Nov, 9am-1pm ET
14-15 Dec, 1pm-5pm ET

» Project Risk Assesment Using @RISK for Project
30-31 July, 11am-3pm ET

NEW
5-Part Web Training from our Asia-Pacific Office

» Part 1
Introduction to Simulation
and Modelling Uncertainty
2 June, 1-5pm AEDT
23 June, 1-5pm AEDT

» Part 4
Advanced Modelling Techniques
4 June, 1-5pm AEDT

» Part 5
Special @RISK Functions
25 June, 1-5pm AEDT

Palisade software is available in fully functional trial versions. Try @RISK or any of our software today!


The complete risk and
decision analysis toolkit


The world's most widely
used risk analysis tool
» @RISK for Excel
» @RISK for Project
» @RISK for Six Sigma


Visual decision analysis
for spreadsheets


Sophisticated neural networks for spreadsheets


Advanced statistical analysis for spreadsheets


The Innovative Optimizer
for Windows

Fed Uses Monte Carlo Simulation
for Banking Sector Stress Tests
The U.S. Federal Reserve recently released the results of a comprehensive assessment of the financial conditions of the nation's 19 largest banks, which hold two-thirds of American economic assets. This “stress test” was designed to determine the capital buffers required for the banks to withstand losses and maintain lending even in worsening economic conditions. Officially called the Supervisory Capital Assessment Program (SCAP), the test identified the potential losses, resources available to absorb losses, and resulting capital buffer needed.

Monte Carlo simulation was used to determine the potential losses from further defaults on loans. Palisade’s @RISK and DecisionTools Suite analytical software tools perform Monte Carlo simulation in Microsoft Excel, a common platform for stress tests and other quantitative analyses. According to Federal Reserve Chairman Ben Bernanke, “The assessment program was a forward-looking, ‘what-if’ exercise.” Monte Carlo simulation is one of the most widely used methods of stress testing, taking into account variables such as interest rates, lending requirements, and unemployment.

» Learn more about @RISK
» Read the full statement from Ben Bernanke
Read about the methodology used in the stress test analysis

Munich, Germany, June 16
The Palisade Munich Summer Risk Congress is a one-day event which will feature a selection of case studies examining product applications such as cost estimation, contingency budgeting, hedging, and schedule risk. Overviews of new products (including @RISK 5.5) will also be presented, along with the best practices and principles in uncertainty analysis by Dr. Michael Rees, Palisade's Global Director of Training and Consulting. The event will wrap up with a look ahead by Palisade Vice President Randy Heffernan. The cost of the event includes a three course lunch along with all other refreshments throughout the day.

» Register now for only £99
» View the full schedule

Palisade Energy Risk Forum Houston, May 21, 2009
Palisade Academic Symposium Houston, May 22, 2009
The Palisade Energy Risk Analysis Forum is a one-day event covering risk and decision analysis specific to the energy sector. Hands-on software training and case studies using @RISK and DecisionTools software are included. Learn new approaches to problems in oil and gas, utilities, and related fields.

The Palisade Academic Symposium is a one-day event for professors and grad students demonstrating how the DecisionTools Suite and @RISK can easily enable quantitative risk and decision analysis to be added into academic syllabi. In addition, delegates will see how these tools and techniques are being used in industry. There is no charge for this event.

» Learn more and register for the Palisade Energy Risk Forum
» Learn more and register for the Palisade Academic Symposium

New York, October 21-22
Palisade is pleased to announce its 2009 Conference on Risk Analysis, Applications, and Training, to be held at the Hyatt Regency Jersey City on October 21-22, 2009. Building on the success of last year’s record-breaking event, the conference will offer a wide range of software training, model building, and real-world case study sessions. The schedule will be posted soon, but you can register now.

» Register now at the early rate of $795 $595 and save $200
» See the schedule of events from 2008
» Read about the 2008 event


New Book: Mathletics by Wayne Winston
How Gamblers, Managers, and Sports Enthusiasts
Use Mathematics in Baseball, Basketball, and Football
Wayne Winston has written a number of books on operations research and finance, including the Financial Models series published by Palisade. His newest book, Mathletics, is a remarkably entertaining book that shows readers how to use the mathematical methods used by top managers to analyze a range of statistical and probability-related questions in professional baseball, basketball, and football, and in sports gambling. Winston writes in particular about the use of @RISK to run Monte Carlo simulations on game outcomes.

“Winston has an uncanny knack for bringing the game alive through the fascinating mathematical questions he explores. He gets inside professional sports like no other writer I know. Mathletics is like a seat at courtside.”
Mark Cuban, owner of the Dallas Mavericks

» Pre-order Mathletics

VAIR Trainings in New York
Financial Statement Modeling and Analysis in Excel
June 16-17, 2009
Build Financial Models to Guide Negotiations and Decision-Making. Course participants include: Financial Analysts, Investment & Evaluation Professionals, Business Development Planners, Mergers & Acquisitions Specialists, Accountants.
» Register
» Course Syllabus
» Download Brochure

Project Finance Advanced Modeling
June 18-19, 2009
Learn to Always Negotiate off the Model. Course participants include: Infrastructure Heads & Financial Analysts, Corporate & Structured Finance Teams, Joint Ventures Specialists, Investment & Evaluation Professionals.
» Register
» Course Syllabus

Upcoming Webcasts
"@RISK and Cpk”
Presented by Rick Haynes, Smarter Solutions, Inc.
June 4, 2009, 1:00pm EST
Have you always liked capability metrics, such as Cp and Cpk, and wondered what they really said? Well maybe you are not losing sleep over this issue, but like many statistics, capability metrics are used without a full understanding of their message. View this Webinar and continue your process improvement knowledge as we discuss each of these three questions. We will focus on the application rather than the theory of these capability metrics. Yes, there will be equations and the use of @RISK simulations to gain the true understanding of these indices as you lose normality.

» Register now (There is no charge for this webcast.)

"Executive Pay for Performance Using @RISK”
Presented by Marwaan Karame, IDG Capital Group
June 11, 2009, 11:00am EST
Traditional executive incentive plans often encourage mediocrity and in many cases lead to the destruction of shareholder value. We don't have to look far to find evidence of a company with a long-term decline in stock price and increasing executive pay packages. In this live webcast, we will see why traditional compensation is a formula for mediocrity. We will also show how to create a pay for performance Compensation plan that will maximize long-term shareholder wealth by aligning management and shareholder interests. Lastly, we will demonstrate how to calibrate a pay for performance compensation plan using @RISK.

» Register now (There is no charge for this webcast.)

Palisade Blog Headlines
Baseball and Environmental Regulation
Tuesday, May 12, 2009
baseball has its own group dedicated to statistical analysis, SABR (Society for American Baseball Research) whose quantitative work is know as "sabermetrics." You might think sabermetrics would be a discipline unto itself, but Harvard environmental economist Robert Slavins doesn't. He thinks federal regulators have a lot to learn from SABR.
» Read more

Risk Analysis Software in the Pharmaceutical Industry
Wednesday, April 1, 2009
In my last blog I mentioned there has been a dramatic upswing in the use of risk analysis and Monte Carlo software in clinical trials for new drugs. A new unpublished paper by Todd Clark of VOI Consulting makes clear some of the reasons more people in the pharmaceutical industry are turning to operational risk software to guide them in setting up trials.
» Read more

Subscribe to the Palisade blogs.

Hurricane Evacuation Models use @RISK
Henry Yennie, Manager of Emergency Preparedness for the Louisiana Department of Health & Hospitals, began using @RISK to manage the family assistance call center in 2005 after Hurricane Katrina made landfall. More recently, the modeling he did with @RISK to estimate the number of evacuees from New Orleans prior to Gustav turned out to be almost exact.

» View the full webcast

Using Percentile
Distribution Parameters
This model demonstrates the use of the alternate, percentile parameter formulation. In this case we assume that we have decided to use a Normal distribution to represent the arrival time of someone at work. The use of traditional parameters would require knowledge of the standard deviation of the arrival time, which may be hard to estimate. The use of the alternative parameter formulation allows data to be estimated by others in a more natural way. In the first case, the traditional parameters are used (mean and standard deviation). In the second case, the mean is still used, and the P90 is used in place of the standard deviation, i.e. the time before which the person arrives in 90% of cases. In the second case, the P10 and the P90 is used in place of the standard deviation i.e. the time before which the person arrives in 10% of cases, and in 90% of cases respectively.

Download the example: AltPars.ArrivalTime.xls

RiskSimtable to Perform Multiple Simulations
The RiskSimtable feature can be used to run multiple simulations to test the sensitivity of the model, for example to changes in the parameters of a distribution. This model is of a business with a base case expected revenue of 100 and cost of 80, giving a profit of 20.

The risk model assumes that the revenue and cost distributions are determined from a mean and standard deviation. The RiskSimtable feature is used to test the sensitivity of the distribution of profit to changes in the standard deviation of the revenues. Three values are tested of which the first is our original @RISK model. The number of simulations is therefore set at 3. A RiskSimtable can be set up either by directly typing in the required format, or by inserting it as for other Excel functions via the Insert Function menu option. The model also uses some @RISK Statistics functions to report the probability for each simulation that the profit exceeds 50.

Download the example: BasicBusiness.Simtable.xls

The Binomial Distribution
The binomial distribution is a discrete distribution returning only integer values greater than or equal to zero. This distribution corresponds to the number of events that occur in a trial of a set of independent events of equal probability.

RiskBinomial(n, p) specifies a binomial distribution with n number of trials and p probability of success on each trial. The number of trials is often referred to as the number of draws or samples made. For example, RiskBinomial(10,20%) would represent the number of discoveries of oil from a portfolio of 10 prospects, where each prospect has a 20% chance of having oil.

The most important modelling application is when n=1, so that there are two possible outcomes (0 or 1), where the 1 has a specified probability p, and the 0 has probability 1-p. With p=0.5, it is equivalent to tossing a fair coin. For other values of p, the distribution can be used to model event risk i.e. the occurrence or not of an event, and to transform registers of risks into simulation models in order to aggregate the risks.

Examples

RiskBinomial(5,.25) specifies a binomial distribution generated from 5 trials or “draws” with a 25% probability of success on each draw.

RiskBinomial(C10*3,B10) specifies a binomial distribution generated from the trials or “draws” given by the value in cell C10 times 3. The probability of success on each draw is given in cell B10.

Air Quality
Electronic Nose Can Sniff Out Cancer
Technique: Neural Networks   » see NeuralTools
Source: NetworkWorld, April 30, 2009

Originally designed by NASA to detect air contaminants aboard spacecraft, an electronic nose based on a neural network has gone to work sniffing out brain cancer.

Baseball
New Software for Baseball Fanatics
Technique: Neural Networks   » see NeuralTools
Source: MLB.com, April 27, 2009

One feature of a new video application for baseball aficionados uses a neural network to classify pitches.

Investments
When Monte Carlo analysis meets a black swan
Technique: Monte Carlo simulation   » see @RISK
Source: Investment News, May 3, 2009

Monte Carlo simulation is an effective retirement planning tool, but needs to be used appropriately to account for rare events. @RISK features such as scenario and sensitivity analysis are particularly valuable.

Wind Generation
Wind Power Prediction
Technique: Neural Networks   » see NeuralTools
Source: The Engineer(UK), May 7, 2009

To help wind farm operators and power companies better predict power supply, researchers in Spain built a neural network that can correlate historical data on U.S. wind generation with live data from active turbines.

The Palisade User Forums are online discussion boards where users are invited
to post questions and share ideas on their use of @RISK and other Palisade
software. It's also a great place to check for announcements regarding updates
of Palisade software. Forums are organized by products.

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