News and Press Releases

In recent news article (NYTimes.com – 02/22/09), the use of simulation techniques by the Obama administration to launch a “stress test” was highlighted as a unique mechanism to evaluate and judge the 20 biggest U.S. banks. This analysis will be performed in the next weeks as part of the plan to support the banking system. It will bring up possible challenging scenarios that include different types of downturns: “The stress tests will use computer-run ‘what if’ situations to estimate what would happen to each bank under Depression-like conditions, with unemployment surging to 10 or 12 percent, for example, or home prices dropping 20 percent further, Treasury and Federal Reserve officials said.” This way, the government will be able to predict how stable financial institutions are in these demanding times.

Decision making in Finances, Industries, or even in Hospitals is highly promoted by simulation, which is a descriptive way to model systems and processes. Simulation reproduces the behavior of a system, using a model that describes each step of its processes. It comprises statistical concepts and probability distributions and consists of a flexible modeling mechanism that can easily handle complex relationships. Depending on the number of variables - and in the government case we know this is a huge number - simulation offers an easier understanding of the system than it could be accomplished by flow charts or spreadsheets analysis. Besides, its dynamic and accurate nature makes decision making almost effortless.

In another viewpoint, simulation provides reliable forecasts that would lead to decisions addressed to redesigning processes or supporting some brainstorming.

As conclusion, the NYTimes.com article claims: “But because the tests involve nightmarish economic conditions, the results of the tests are likely to strengthen the case that some of the major banks need more capital. That would increase the likelihood that the government would increase its stake and dilute or even wipe out the shares held by private investors.”… “The tests, officials said, would simply make clearer whether a particular bank needs more capital now or might need more in the future if conditions become worse.”

Simulation models as well as other mathematical tools that lead to improvement of processes are widely used by decision makers. The broad applications of these techniques have been reported in areas like government, health care, commerce, manufacturing, human resources, finances and others. Due to the role of mathematical models in subjects like stock trading, simulation continues to be a success when used for forecasts. It is not exaggerated to remark that this valuable mathematical tool outlines the frontier between the Industrial and the so-called Knowledge-based economy.