The table below summarizes what probabilistic approach to use based on the type of risk and whether the risk elements are correlated or not:
| Discrete/ Continuous |
Correlated/ Independent |
Sequential/ Concurrent |
Risk Approach |
| Discrete | Independent | Sequential | Decision Tree |
| Discrete | Correlated | Concurrent | Scenario Analysis |
| Continuous | Either | Either | Simulations |
The table below summarizes whether the three probabilistic approaches can be used as complements or substitutes for risk-adjusted value.
| Complements Risk-Adjusted Value | Substitute for Risk-Adjusted Value | |
| Scenario Analysis | Yes | No |
| Decision Tree | Yes | Yes |
| Simulations | Yes | Yes |
Sign up to get more!