Sensitivity analysis
Sensitivity analysis is used in various fields, including finance, engineering, economics, and statistics, to understand how changes in certain variables affect the outcome of a model or decision-making process. It helps in assessing the robustness and reliability of a model by identifying the most critical factors influencing its results.
We are now going to present three sensitivity analysis techniques:
- One-way sensitivity analysis: This involves varying one input variable while keeping all other variables constant. It helps to understand the impact of changes in a single parameter on the model’s output.
- Double-way sensitivity analysis: In this approach, two input variables are varied simultaneously to assess their combined impact on the output.
- Multiple-way sensitivity analysis: You can use this technique if you want to analyze more than two input variables simultaneously.
One-way sensitivity analysis
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