Sensitivity Analysis Definition

A sensitivity analysis is a tool used to determine how different values of an independent variable will affect a particular dependent variable under a given set of assumptions. Sensitivity analyses are often used in financial modeling to analyze how changes in certain variables (such as interest rates or commodity prices) will affect the value of a project or investment.

Sensitivity analyses can be performed using different techniques, including linear regression, Monte Carlo simulations, and scenario analysis. The choice of technique will depend on the type of data available and the nature of the relationship between the variables being analyzed.