# Universal Principal of Risk Management: Pooling and Hedging of Risk

Pulling and Hedging of Risk

**Probability theory**

First found in the 17th Century

$$P=Prob. 0≤P≤1$$

**Independence theory
**each event is independent from the next, an example of this would be throwing a coin in the air, every time you throw each event is independent from the other to calculate this probability

$$Prob (A and B) = Prob (A).(B)$$

**Binomial Distribution:**

The binomial distribution is the discrete probability distribution of the number of successes in a sequence of n independent yes/no experiments, each of which yields success with probability p. Such a success/failure experiment is also called a Bernoulli experiment or Bernoulli trial; when n = 1, the binomial distribution is a Bernoulli distribution. The Binomial distribution is an n times repeated Bernoulli trial. The binomial distribution is the basis for the popular binomial test of statistical significance. eg. x events in n tries:

**Population measures**

Random Variable = E(x)=Mx=

** Random Variable Sample**

The Geographic Average is should be used to calculate a performance of an investor.

## Leave a Reply

Want to join the discussion?Feel free to contribute!