BUSINESS

STATISTICS
Dr. Gyanesh Jain

ASSIGNMENT

BY
C RAMESH CHANDRA RAGHUL
NU PBRM BATCH II
07/2021

What is a Probability?
 Probability is the branch of mathematics concerning numerical
descriptions of how likely an event is to occur, or how likely it is
that a proposition is true.
 It is considered as a measure of expectation about occurrence of an
event.
 Probability is given a corresponding value from 0 to 1 depending
upon the chances of occurrence. If the probability of an event’s
occurrence is higher which means close to 1 then there are more
chances of the event’s occurrence whereas if the probability of an
event’s occurrence is lower which means close to 0 then there are
lower chances of the event’s occurrence.
 It is a quantitative tools widely used in the areas of economics and
finance.

Importance of probability in marketing of financial

products and services:

 Probability is one of the most useful topics whose application in

finance and investment domain is pretty important.

 Probability in Finance is a tool for modeling financial markets their

risks and returns.

 There are a lot of real world applications of probability in finance

as can be widely seen in portfolio expected returns and variance.
  Bankers use statistical approaches based on probability to estimate
the number of deposits and their claims for a certain day.

 Probability are used by risk managers for forecasting future events,

such as market slowdown and impact losses. This process involves
a review of historical loss data to calculate a probability
distribution that can be used to predict future losses.

USES OF PROBABILITY IN DIFFERENT

BANKING PRODUCTS

Health Insurance
Insurance underwriters use probability theory when evaluating
policy applications.
For example,
If the policyholders who smoke tobacco or having
drinking habit then the individual are at a higher risk for developing
serious health problems.
They also check their family health status, if he/she have family
members with breast cancer or any hereditary diseases then their risk
increases. This show that this often results in increased health insurance
claims.
 The applicant's age and geographic location also allow the
underwriter to predict future claims based on probability.

Life Insurance
In Life Insurance the underwriter will analyze mortality rates of their
customer where the policyholder lives and what socioeconomic factors
apply to the policyholder's current age and health.
They consider individual factors, which are important like probability of
acquiring specific types of diseases at specific ages. This analysis helps
the insurer to determine rates and options for life insurance policies and
annuities for the policy holders by using probability theory to predict the
number of years a policyholder will live.

Automobile Insurance:
Companies that provide property and liability insurance use probability
to assess risks. Data show that the age and gender of the driver plays a
role in the likelihood of an auto accident.
The type of vehicle insured, the driver's geographic location and the
number of miles driven regularly are additional factors the insurer
considers when setting premium rates based on probability.
The more miles a policyholder drives, for example, the greater the
probability he'll be involved in an accident. Setting rates for
homeowners insurance also involves probability.

Stock Trading
Stock traders use quantitative analysis to analyze the market and predict
the future value of securities. They begin by assuming that the path of a
stock will be a "random walk" and that the values will be distributed
along a bell curve or a normal set of values. With this data, they can use
probability theory to make investment decisions.
For example,
Pharmaceuticals will go up in value. But my own feeling is that there is
only a 40% chance of the market reaching 8,500 by August. How to find
the probability for this event?

Let M represent the event of stock market reaching 8,500 points by stock
broker
Let N represent the event of stock market reaching 8,500 points my
feeling
Then,
P(MN) = P(N|M)P(M)
= P(0.80)(0.40)
= P(0.32)