(pause while I pull out the textbook) looks like you could start googling from there... the equation for the expected return of a security in various states of nature (boom, recession and neither) looks just like the above. (ER=summation of all products of return*probability) Basically it's a weighted average and is probably an application of some broader theory since, as previously mentioned, there are similar concepts in project management used for weighing project A vs project B.
The most important idea though, is that the more detailed the model and the more realistic the numbers assigned to probability, the better the prediction. Dana On Wed, 22 Dec 2004 10:11:37 -0500, Won Lee <[EMAIL PROTECTED]> wrote: > > where the sum of probabilities is 1.0 > > > > This is also a finance concept whose name escapes me at the moment. > > Expected Value? > > -- > 2004 - The year $184M couldn't buy a pennant. > > Ron Artest: Extremely flawed, very accidental, semi-martyr > > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Special thanks to the CF Community Suite Gold Sponsor - CFHosting.net http://www.cfhosting.net Message: http://www.houseoffusion.com/lists.cfm/link=i:5:140848 Archives: http://www.houseoffusion.com/cf_lists/threads.cfm/5 Subscription: http://www.houseoffusion.com/lists.cfm/link=s:5 Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=11502.10531.5 Donations & Support: http://www.houseoffusion.com/tiny.cfm/54
