Mandate and Probability: Difference between pages

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1.
The study of chance providing an objective measure of uncertainty.


An authoritative command or instruction, for example one given to a bank by its customer.


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


2.
A probability of 100% means that an event is considered certain to occur.  


An account (or bank) mandate completed by a customer to open a new bank account. The mandate specifies which individuals in the customer organisation are authorised to act on the account, in what capacity and up to what limits.
A probability of 0% means that an event is considered certain not to occur.




3.
For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.


Agreements regulating the dealing relationship between an organisation and its counterparties, authorising people to conduct transactions, possibly applying limits to the size of deals and procedures concerning settlement, and regulating the opening and closing of transactions. 


Mandates are a key element of treasury [[controls]] and are an essential mechanism for reducing an organisation's dealing risk.
===The problem===


Also known as 'dealing mandates'.
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:


4.
#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.
A bond mandate.  
 
 
5.
 
Any similar mandate, for example a USPP mandate.  




== See also ==
== See also ==
* [[Assessing the US private placement market from a corporate perspective]]
* [[Black swan]]
* [[Board resolution]]
* [[Conditional probability]]
* [[Bond mandate]]
* [[Confidence interval]]
* [[USPP]]
* [[Frequency distribution]]
 
* [[Mutually exclusive]]
[[Category:Compliance_and_audit]]
* [[Poisson distribution]]
[[Category:Risk_frameworks]]
[[Category:Cash_management]]
[[Category:Treasury_operations_infrastructure]]

Revision as of 15:20, 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%.


The problem

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

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