Monte Carlo Research Paper

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Ignoring correlations among exposure variables can bias Monte Carlo calculations. However, information on possible correlations is seldom available. Exposure factors developed from short-term studies with large populations may not accurately represent long-term conditions in small populations. The tails of Monte Carlo risk distributions, which are of greatest regulatory interest, are very sensitive to the shape of the input distributions. Because of these limitations, Region III does not recommend Monte Carlo simulation as the sole, or even primary, risk assessment method. Nevertheless, Monte Carlo simulation is clearly superior to the qualitative procedures currently used to analyze uncertainty and variability. For baseline risk assessments at NPL sites, Region III recommends that uncertainty and variability surrounding single-point risk estimates rely on multiple descriptors of risk (EPA, 1992). Monte Carlo simulation will be an acceptable method for developing these multiple descriptors. (Use of Monte Carlo Simulation,2016)

Recommendation

Yes, I believe the oil drilling company should implement the Monte Carlo Simulation, because it will be able to help them plan all future drillings and location because the randomness of the program inputs. Whenever you need to make an estimate, forecast or decision where there is significant uncertainty, you'd be well advised to consider Monte Carlo simulation if you don't, your estimates or forecasts could be way off the mark, with adverse consequences for your decisions.

References

Brandimarte, P. (2014). Handbook in Monte Carlo Simulation : applications in financial engineering, risk management, and economics. Retrieved from https://ebookcentral-proquest-com.ezproxy.ltu.edu:9433

Monte Carlo Simulation. (n.d.). Retrieved October 01, 2017, from http://www.palisade.com/risk/monte_carlo_simulation.asp

What is Monte Carlo Simulation?. (n.d.). Retrieved October 01, 2017, from https://www.riskamp.com/files/RiskAMP%20-%20Monte%20Carlo%20Simulation.pdf

Blanchett, D. & Pfau, W.(2014, August 26). The power and limitations of Monte Carlo Simulations. Retrieved October 1, 2017, from https://www.advisorperspectives.com/articles/2014/08/26/the-power-and-limitations-of-monte-carlo-simulations

Use of Monte Carlo Simulation in Risk Assessments. (2016, October 03). Retrieved October 01, 2017, from https://www.epa.gov/risk/use-monte-carlo-simulation-risk-assessments