Analysis of risk

Analysis of Risk (Measurement of Risk):

It includes following methods:

Random Variables & Probability Distribution

Random Variables: Random Variable is variable whose out come is uncertain. For example, if a coin is to be flipped and the variables x is defined to be to be equal to Rs. 1 if heads appears and Rs. –1 if tails appears. Then prior to the coin flip, the value of x is unknown; that is x is random variables. Once the coin has been flipped and the outcome revealed, the uncertainty about x is revealed, because the value of x is then known.

Probability Distribution: It identifies all the possible outcomes for the random variables and the probability of the outcomes. Probability distribution indicates the proportion of expected outcome to the total out come. So, in this above example, the probability of appearing of heads and tails will be .5 in each case. Because there are only two expected out comes.