The following points highlight the top four statistical methods used for measuring risk. The methods are: 1. Probability 2. Expected Value 3. Variability or Dispersion 4. Standard Deviation (SD). Statistical Method # 1. Probability: If we toss an unbiased coin, we would obtain any one of two outcomes—head and tail. If we toss the coin quite a good number of [...]
Here we shall try to explain why do risk-averse persons invest in the stock markets and how do they take decisions regarding the amount of risk they should bear while making investments and planning for the future. Reason # 1. Assets: An asset is something that provides a flow of money or services to its owner. A house, an apartment, [...]
The willingness to bear risk is not the same for all persons. Here we may speak of three types of persons: (i) For some persons, as income rises, marginal utility (MU) of income diminishes. As we shall see, they do not like to take risk. They are risk-averse. (ii) For some other persons, as income rises, MU of income also [...]