Answer to Question #155694 in Management for Prabhdeep

Question

Explain why theoretical probability distribution is useful for Risk managers?( please answer in 100 to 150 words)

Answer 1

Theoretical probability distribution refers to an element of statistical function, which points to probable values of an occurrence of a random variable. It remains significant in the field of risk management. For risk managers, this statistical aspect is useful in evaluating the likelihood and extent of losses an investment portfolio might suffer based on the spread of past returns. For instance, risk managers commonly use a metric known as value-at-risk. The tool generates the minimum loss, which can arise given the time frame and probability of a specific portfolio. The metric can also produce a particular stock’s position by assessing the estimated returns that could be realized in the future.