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HISTORY
The sixteenth century Italian polymath Georama Cardano demonstrated the efficacy of defining odds as the ratio of favourable. to unfavourable outcomes.
According to Richard Jeffrey, "Before the middle of the seventeenth century, the term 'probable' (Latin probabilis) meant approvable, and was applied in that sense, univocally, to opinion and to action.
Daniel Bernoulli (1778) introduced the principle of the maximum product of the probabilities of a system of concurrent errors.
The first two laws of error that were proposed both originated with Pierre-Simon Laplace.
In financial market : change in interest rates
would effect the value of a
Stock market index. All major stock market have historical data available . So we have no problem for finding the outcomes for these events.
In risk management : essentially any concept of risk is
built on fundamental concept of
Chance ,likelihood or Probability. Although risk genrally describe a probability of loss of something of value.
In communication network : A computer communication channel transmits words of “n” bits using an error correcting code which is capable of correcting errors up to k bits .here each bit is either 0 or 1 . If each bit is transmitted correctly with probability ‘p’ and incorrectly with probability ‘q’ independently of all other bits.
ETYMOLOGY
The word Probability derives from the Latin probabilitas, which can also mean probity, a measure of the authority of a witness in a legal case in Europe, and often correlated with the witness's nobility. In a sense, this differs much from the modern meaning of probability, which, in contrast, is a measure of the weight of empirical evidence, and is arrived at from inductive reasoning and statistical interference.
TYPES OF PROBABILITY
Classic Probability
The classical approach to probability often involves coin tossing or rolling dice. It is calculated by listing all of the possible outcomes of the activity and recording the actual occurrences. For example, if you are tossing a coin, the possible outcomes are either heads or tails.
Experimental Probability
Experimental probability is based on the number of possible outcomes by the total number of trials. When tossing a coin, the total possible outcomes are two, heads and tails. The total number of trials is determined by the total times the coin is flipped. If the coin is flipped 50 times and it lands on heads 28 times, then the theoretical probability is 28/50.
TYPES OF PROBABILITY
Theoretical Probability
Theoretical probability is an approach that bases the possible probability on the possible chances of something happen. For example, if you want to know the theoretical probability that a die will land on a number "3" when rolled, you must determine how many possible outcomes there are. On a die, there are six numbers, offering six possibilities.
Subjective Probability
Subjective probability is based on a person's own personal reasoning and judgment. It is the probability that the outcome a person is expecting will actually occur. There are no formal calculations for subjective probability but instead it is based on a person's own knowledge and feelings. For example, during a sport's game, a fan of one team may state that the team they are rooting for will win.