COMMERCE 4FR3- Final Exam Guide - Comprehensive Notes for the exam ( 83 pages long!)
30 Nov 2017
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It"s (cid:271)(cid:272) of the (cid:272)o(cid:373)(cid:271)i(cid:374)atio(cid:374) of the pro(cid:271)a(cid:271)ilit(cid:455) of a loss a(cid:374)d the a(cid:373)ou(cid:374)t of the possi(cid:271)le loss. Now lets (cid:272)lassif(cid:455) risk (cid:271)(cid:455) looki(cid:374)g at t(cid:449)o dri(cid:448)ers ali(cid:272)e a(cid:374)d joe. I(cid:374)sura(cid:374)(cid:272)e (cid:272)o(cid:373)pa(cid:374)ies put them into different classes and, using historical data, they estimate how much they will have to payout for each of them. They can also have an idea of how accurate their prediction is by calculating the standard deviation. ,326 = amount of uncertainty about the amount of the payout. Subtract each outcome, x, from the expected value, e(x), to get the difference of each outcome from the expected. Square the each difference because we don"t care if the outcome is above or below the expected value. Multiply the squared difference from step 2 by the weight for each outcome. Take the square root of the variance to get the standard deviation.
