Part 2. MM4XL Tools > 1. Strategic Tools > Risk Analyst > 4. Functions > 3. Distribution Functions > mmPARETO(Location, ModalValue)

Risk Analyst

mmPARETO(Location, ModalValue)

Example

=mmPARETO(2, 1) can equal 6.156197548.

Application

This distribution was developed to describe the spread of income, with a high proportion of a population having low income and only a few people with very high income. mmPARETO can be used to model insurance claims, the occurrence of extreme weather, and more.

How to use

This function returns a normally distributed value around the mean. This helps, for instance, to model the growth of a given market for successive years. Say that we are looking into the profitability of a new product launch and we need to estimate the market size for 5 consecutive years. The value of the market at year zero is estimated in 1 million and will grow at a rate of around 5% a year. The formula below helps to model this case:

=mmPARETO(0.2, 1)

Copy the formula above in 100 cells. You will find that it produces values with the Mode, or most frequent value, equal to 1 as required in our formula, and 50% of the simulated values are smaller than 32 seconds spent with us. The extreme value we obtained with the formula above was 631.7 seconds.

Technical profile

Type Continuous distribution.
Syntax ==mmPARETO(Location, ModalValue)
Domain Location < RndNum < Infinity
Mode ModalValue.
Parameters 0
ModalValue = c > 0
Remarks If any argument is nonnumeric mmPARETO returns the #VALUE! error value.
Relationships It is related to the Exponential variate with parameter b = 1/c.
It is related to the Gamma and Chi2 variate.
Graphs
mmPARETO(2, 1) mmPARETO(20, 1)
 Monte Carlo Simulation Software: Management Process Risk Analysis  Monte Carlo Simulation Software: Management Process Risk Analysis
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