  The Large Interferometer For Exoplanets (LIFE) initiative is developing the
science and a technology roadmap for an ambitious space mission featuring a
space-based mid-infrared (MIR) nulling interferometer in order to detect the
thermal emission of hundreds of exoplanets and characterize their atmospheres.
In order to quantify the science potential of such a mission, in particular in
the context of technical trade-offs, an instrument simulator is required. In
addition, signal extraction algorithms are needed to verify that exoplanet
properties (e.g., angular separation, spectral flux) contained in simulated
exoplanet datasets can be accurately retrieved. We present LIFEsim, a software
tool developed for simulating observations of exoplanetary systems with an MIR
space-based nulling interferometer. It includes astrophysical noise sources
(i.e., stellar leakage and thermal emission from local zodiacal and
exo-zodiacal dust) and offers the flexibility to include instrumental noise
terms in the future. LIFEsim provides an accessible way for predicting the
expected SNR of future observations as a function of various key instrument and
target parameters. The SNRs of the extracted spectra are photon-noise
dominated, as expected from our current simulations. From single epoch
observations in our mock survey of small ($R < 1.5 R_\mathrm{Earth}$) planets
orbiting within the habitable zones of their stars, we find that typical
uncertainties in the estimated effective temperature of the exoplanets are
$\lesssim$10%, for the exoplanet radius $\lesssim$20%, and for the separation
from the host star $\lesssim$2%. SNR values obtained in the signal extraction
process deviate less than 10% from purely photon-counting statistics based
SNRs. (abridged)
