Calculating risk.

[jd1888]

Hi All,

I was wondering how do you calculate the total amount of risk from a series of events happening? I thought you would just add them together and that would be the answer, but I'm not entirely sure because that just seems to easy. (I have googled this question but haven't had any joy.)

Example: Event A 2% chance of occurring
Event B 4% chance of occurring
Event C 3.2% chance of occurring

What would be the total chance of event A and B happening?
What would be the total chance of event A, B and C happening?

Thanks for any help.

 

[TheBramble]

Are the probabilities of any of the events dependent on any of the other events?

If not, then the probability of more than one of the events happening (X AND Y AND…) is the product of their probabilities. If you’re looking for the probability of one OR other of the events happening (X OR Y OR…) it is the sum of their probabilities.

 

[jd1888]

They are independent events.

I was wondering what would be the probability of event A and B happening, also the probability of event A, B and C happening.

This is the conclusion I've came too please correct me if I am wrong or let me know if I'm right.

1 x (1+ % probability of event A) = 3
3 x (1+ % probability of event B) =15% chance of event A and B occurring.

1 x (1 + % probability of event A) = 3
3 x (1 + % probability of event B) = 15
15 x (1 + % probability of event C) = 63% chance of event A, B and C occurring.

This doesn't seem right to me at all so any help would be greatly appreciated.

 

[TheBramble]

If they are independent events then the chance of:_

A AND B = 2/100 * 4/100 = 8 X 10E-4 or 8/10,000

A AND B AND C = 2/100 * 4/100 * 3.2/100 = 2.56 X 10E-5 = 256/10,000,000

While your math doesn't work in either scenario, are you sure you're not considering the probability of ANY of these events happening rather than ALL of them happeneing?

 

[timot]

If you’re looking for the probability of one OR other of the events happening (X OR Y OR…) it is the sum of their probabilities.

So you are saying that if event X has probability 0.7 and event Y has probability 0.9 then X OR Y has probability 1.6 >1.

At no point the OP told you that the two events come from the same experiment. You should have asked if X and Y are such that the following holds:

{X AND Y occur within the same performance of an experiment} .

So stop spewing around. It is people like you that pollute forums posting crap and avert the majority of knowledgable people from participating.

 

[TheBramble]

So you are saying that if event X has probability 0.7 and event Y has probability 0.9 then X OR Y has probability 1.6 >1.

The OP was asking for probabilities of event X AND Y, not OR. But to head off nit-pickers like yourself, even if he had been asking about an OR, if they are not mutually exclusive the additional step of subtracting the probability of both X AND Y occurring would have been insignificant in OPs data, much less so in yours.

So stop spewing around. It is people like you that pollute forums posting crap and avert the majority of knowledgable people from participating.

Your participation clearly confirms your statement. “knowledgable” is more commonly spelled knowledgeable.

Thanks for playing and don’t let the mods catch you using that IP address again.

 

[jd1888]

If they are independent events then the chance of:_

A AND B = 2/100 * 4/100 = 8 X 10E-4 or 8/10,000

A AND B AND C = 2/100 * 4/100 * 3.2/100 = 2.56 X 10E-5 = 256/10,000,000

While your math doesn't work in either scenario, are you sure you're not considering the probability of ANY of these events happening rather than ALL of them happeneing?

So the chances of both event A and B occurring are 0.0008%?

And the chances of events A, B and C occurring are 0.0000256%?

What I was trying to figure out was if I had a series of outcomes that could happen (from completely independent events that can all occur) what would be the % probability of the them occurring from the first event to the next, then the worst case scenario.

I thought my calculation was wrong because the percentage probability increased rather than decreased.

 

[samirdu16]

what are you calculating really guyz ?
I mean is there a real risk equation ... I mean an accurate one ?
hmmm its not always accurate and its just probabilities and chances )

 

[gle101]

what are you calculating really guyz ?
I mean is there a real risk equation ... I mean an accurate one ?
hmmm its not always accurate and its just probabilities and chances )

Yes calculating accurate risk in trading is impossible. There are just to many unpredictable parameters involved. The most important risk parameters in my opinion is your own experience, discipline, emotional status and the implementation of
Risk & Money Management.

____________
"Take control with Risk & Money Management"
http://www.trade2win.com/boards/pla...140296-visualrmm-interactive-new-concept.html