Monte Carlo Simulation

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According to Business Insider, some CEO pay plans are so complicated that a powerful mathematical technique originally developed to understand the behavior of neutrons in an atom bomb explosion is now the most effective way to estimate what they are actually worth.

Questions:

  1. Where did the inspiration for the Monte Carlo simulation come from (according to a retrospective article)?
  2. As part of its policy on executive pay disclosure, what does the SEC require corporations to publish regarding executive compensation packages?
  3. In the last several years, it’s become increasingly common for CEOs and other top executives at public corporations to have their compensation packages tied to various financial performance goals and what does the Monte Carlo simulation provide to help us understand executive compensation?

Source:

Kiersz, E. (2019). A mathematical technique originally developed to help build the atomic bomb is now used to figure out how much CEO pay packages are worth — like with Elon Musk. Business Insider, Sep. 15 (Retrievable online at https://www.businessinsider.com/monte-carlo-simulations-calculate-value-of-ceo-pay-2019-8)