14/7/2019 VBA5 - Monte Carlo Integration

Monte Carlo Integration

To find the area under a curve, one can use integral calculus. If the curve has
no close form, such as the normal curve, then the area can not be derived
analytically. However, with today's computer technology, one can use Monte
Carlo Integration to achieve such task. The area under a distribution is also
known as probability. In this example, we want to compute the area under
standard normal probability distribution from 0 to z. We will set z equal to 1.8.

The Monte Carlo Integration procedure is as follow:

1. Identify the range of X and Y coordinates where the random number will
be placed.
(The random numbers that we use follow a uniform distribution.) Ex: In this
case, the minimum coordinate of X and Y are both zero. The maximum
coordinates of X are given by the user. The maximum coordinate of Y occurs
where the X coordinate is zero. In this case, it is 1 over the square root of 2
pi, 0.39894.

2. Compute the area of the rectangle in question (defined by red dots in

Figure 1) using the X and Y range.

3. Run the random process. All the random numbers (X,Y) will land within the
rectangle. Count how many points land below the curve.

4. Divide the sum of points below the curve by the number of iterations to get
the proportion of points below the curve to the total number of points.

5. Multiply this proportion by the area to get the probability. This probability is
shown on cell D4 of Figure 2. The probability is 46.37%. Compare that result
to 46.41%, the result that can be found in the z Table in virtually any statistics
textbook.

The second program utilizes the random numbers generated from a normal
distribution to derive the probability. The probability under 1,000,000
iterations using this method is 46.43%. In term of computer time required,
this method is 3 to 5 times faster than the Monte Carlo Integration method.
However, in order to use the latter method, one must be capable of
generating the random numbers which associated to a specific distribution.

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14/7/2019 VBA5 - Monte Carlo Integration

VBA Codes

Option Explicit
Option Base 1

'***********************************************************************
'* Obtain area under the normal distribution curve (probability) *
'* using Monte Carlo Integration Method *
'***********************************************************************

Sub Integrate_Normal()
Dim n As Variant
Dim mean As Variant
Dim sd As Variant
Dim x As Variant
Dim MaxY As Single, z As Single, f_of_z As Single
Dim Proportion As Single, Area As Single, Prob As Single, y As Single
Dim i As Long, count As Long

Randomize
n = Range("c4").Value
mean = Range("c5").Value
sd = Range("c6").Value
x = Range("c7").Value
count = 0
MaxY = 1 / Sqr(2 * Application.Pi())

For i = 1 To n
z = Rnd * (x - mean) / sd
y = Rnd * MaxY
f_of_z = 1 / Sqr(2 * Application.Pi()) * Exp(-z ^ 2 / 2)
If (y < f_of_z) Then count = count + 1
Next i

Proportion = count / n
Area = MaxY * (x - mean) / sd
Prob = Proportion * Area
If (Prob > 1) Then Prob = 1
Cells(4, 4) = Prob

End Sub

'***********************************************************************
'* Obtain area under the normal distribution curve (probability) *
'* using random numbers from Standard Normal Distribution *
'***********************************************************************

Sub NormNo()
Dim n As Variant
Dim mean As Variant
Dim sd As Variant
Dim MaxX As Variant
Dim MinX As Variant
Dim i As Long, count As Long
Dim y As Double

n = Range("c12").Value
mean = Range("c13").Value
sd = Range("c14").Value
MaxX = Range("c15").Value
MinX = mean
Randomize
count = 0

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14/7/2019 VBA5 - Monte Carlo Integration
For i = 1 To n
y = gauss * sd + mean
If y >= MinX And y <= MaxX Then count = count + 1
Next i

Cells(12, 4) = count / n

End Sub

'***********************************************************************
'* Return random numbers from Standard Normal Distribution *
'***********************************************************************

Function gauss()
Dim fac As Double, r As Double, V1 As Double, V2 As Double

10 V1 = 2 * Rnd - 1
V2 = 2 * Rnd - 1
r = V1 ^ 2 + V2 ^ 2
If (r >= 1) Then GoTo 10
fac = Sqr(-2 * Log(r) / r)
gauss = V2 * fac

End Function

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