Investment grade and Probability: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Link with IGA page.)
 
imported>Doug Williamson
(Layout.)
 
Line 1: Line 1:
''Credit rating'' 
The study of chance providing an objective measure of uncertainty.


The highest credit ratings, from BBB- (Baa3) and higher, for longer term obligations.


Investment grade represents the strongest credit ratings, for the safest investments.
Probabilities range between 1 (=100%) and 0 (=0%). 
 
A probability of 100% means that an event is considered certain to occur.
 
A probability of 0% means that an event is considered certain not to occur. 
 
 
For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.
 
 
This simple model of a coin flip assumes that the only two possibilities are a head or a tail.  Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:
 
#The coin landing on its edge 'more often than it's supposed to'.
#The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.




== See also ==
== See also ==
* [[CQS]]
* [[Black swan]]
* [[Credit rating]]
* [[Conditional probability]]
* [[IGA]]
* [[Confidence interval]]
* [[Junk]]
* [[Frequency distribution]]
*[[Investment-grade bond]]
* [[Mutually exclusive]]
* [[Non-investment grade]]
* [[Poisson distribution]]
* [[Prime]]
* [[Sub-prime lending]]
 
[[Category:Investment]]
[[Category:Manage_risks]]

Revision as of 15:19, 8 June 2016

The study of chance providing an objective measure of uncertainty.


Probabilities range between 1 (=100%) and 0 (=0%).

A probability of 100% means that an event is considered certain to occur.

A probability of 0% means that an event is considered certain not to occur.


For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.


This simple model of a coin flip assumes that the only two possibilities are a head or a tail. Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:

  1. The coin landing on its edge 'more often than it's supposed to'.
  2. The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.


See also