Question

Class - what is the meaning of a Sensitivity Analysis. Scenario Analysis and a Simulation Analysis? Why might a company do this type of analysis and are we able to use these personally-for example, let's say I want to buy a house and need to determine if I can do so - which one of these analysis might use and why?

Can you please, please help me with this assignment? I am extremely desperate and I have no idea what to do or say.

Is there any way possible you could please, please, please cite a source in APA format with your answer? I would be extremely grateful to you and I appreciate your time and effort.

1) What is the meaning of sensitivity analysis, scenario analysis, and simulation analysis?
2) For example: If I want to buy a house and need to determine if I can do so, which one of these analysis might I use and why?

Answer 1

(1): Sensitivity analysis entails estimating how sensitive the dependent variable in question is to any changes in the independent variable. In other words sensitivity analysis determines how sensitive the change in an outcome is based on changes being made in a single variable.

On the other hand scenario analysis entails making assumptions with regards to a number of independent variables as well as environmental factors. The next step is to determine the impact of them on the eventual outcome. Here we are not looking at changes being made in a single variable (like in case of sensitivity analysis) but at different factors.

Simulation involves re-creation of real world processes in a controlled environment. It involves using statistical and computer modeling to model different process scenarios as well as outcomes.

(2): In this case where you need to determine if you can buy a house you should do a scenario analysis. Here you will use scenario analysis to estimate the price of the house under a variety of scenarios or different possibilities like change in your income, future interest rates, inflation rates, etc.

Sources: Investopedia, Sciencedirect, Bankingschool