Question

Assume you are discussing adding mathematics and probability risk analysis to a financial model.

• What key points would you employ in persuading a peer that it is a good idea to add these attributes to your model?
• How would your model improve?

Answer 1

A financial model forecasts on an investment or performance of a financial asset or event of different companies. These models can be of multivariate models and thus helps managers to get a holistic view on the valuation of the particular investment outcome. Including a probability risk analysis in a financial model will ensure

1. These multi-factor model gives an outcome scenario of most desired to most undesired of the analysis of investment and valuation. Thus it helps the managers to gauge all the probable scenario happening for them. It prepares the companies to make proper decision for the future.

2. It gives the investors a clear idea of the "What if" situation as it is important to know the extreme risk factor attached to the investment. Thus they can decide on their own to move forward in the investment decision.

3.It also gives Expected Value after the Scenario Analysis of the multivariate financial models. So that the investor knows the level of risk associated with the outcome.

My model on financial risk analysis will improve by employing different probability situation by making it effective in different risk situation. From most desired expected outcome to most undesired. A multivariate analysis and probability situation will give the investors option of choice which will give them their expected outcome.