Probability Concepts

Probability theory is a branch of mathematics that helps us understand random events. Probability is a measure of how likely an “event” is to occur.

In practical situations like finance, we often have to decide where some risk is involved. The logical and consistent tools we use to make such decisions are based on probability concepts.

Therefore, we need probability theory to handle many real-world problems that involve risks.

For example, we use probability tools to price bonds to consider the risk of default.