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101 Concepts for the Level I Exam

Essential Concept 12: Comparison of Scenario Analysis, Decision Trees, and Simulations


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