Question

Describe and explain the key difference between discrete scenarios and probability-weighted scenarios IN ECONOMIC OR FINANCE

Answer 1

Discrete Scenario Analysis is process of analysing and examining based on future which would produce different outcomes and those outcomes we get at specific interval

for example any news or quaterly result does affect the outcome in percentage it has an impact on the outcome so it can have best or worst cases

Probability-Weighted scenarios- is the range of scenarios which are summed together and each outcome is equally weighted and all these serval scenarios can be used to provide expected risk parameters

for example we can provide different scenarios to calculate probability weighted outcomes like recession, company resultts, fed interest rate changes

The key difference btween discrete and probability weighted scenarions is thier nature discrete scenarios are analysed with an interval for risk analysis however probablity weighted weighs the different probablity based on situation or outcomes it averages different scenarios varying assumptions to analyse the risk.