Understanding Monte Carlo
Would anyone here be willing to help me understand the Monte Carlo reports? I start with the following text from the tutorial:
In the process of calculating the entire time path or trajectory of consumption associated with each of the 500 time paths of randomly drawn returns, we also determine the associated time paths of retirement and regular asset levels, income levels, saving levels, etc. After all 500 trajectories of all variables are determined, we do two things. First, we show the percentile distribution of outcomes for the household’s living standard, income, and asset levels in each future year. Second, we rank the 500 trajectories based on the present value of consumption and display the trajectories for the household’s living standard, income, and asset positions associated with the fifth lowest, 25th lowest, 50th lowest, 75th lowest, and 95th lowest present values of consumption. We refer to these as lowest, low, middle, high, and highest trajectories.
1. What, for example, is meant by "5th lowest present values of consumption"? I don't know what that means. So 95th lowest is associated with "highest trajectory"? Hmm. I don't get that.
I'll stop here and see if anyone replies.