Quant Investments Probability Essay

1092 words - 5 pages

Quant Investments
“It had not been a particularly good year for Quant Investments”, mused Alain over his pate
de foie gras and champagne. It was lunchtime on Christmas Eve, and his three colleagues
Belén, Carlos and Dawood had already set off on holiday to far-off, exotic locations. The four
of them had worked as a close team of analysts for the past 15 months since graduating as
MBAs, and Alain realised that their performances had not come up to expectations. Alain
feared that all four may lose their jobs shortly. At this moment of low spirits, Xavier, one of
the senior partners whom Alain had always found remarkably candid, joined him for lunch.
“Well, Alain, I’m sure you have ...view middle of the document...

Merry Christmas!” Alain’s immediate reaction was
one of further relief. He was pleased that Carlos and Dawood will receive good news on his
return. But then his depression deepened. “It’s now between Belén and myself. My chance of
being fired seems to have gone up from one in four to one in two. Perhaps I shouldn’t have
squeezed that extra information out of Xavier after all!”
Discuss whether or not Alain is right in thinking that the probability changed from ¼ to ½?

---------------------------------------------- Answer ------------------------------------------------------------

The essence of the problem in Part B is the probability of the selection of one of four individuals for termination. Essentially, one of four members of an analyst team at Quant Investments was going to be terminated due to poor team performance. The decision on which of the four team members would be terminated was not to be based on individual merit. Rather, the decision was to be based on random selection (wherein each member of the analyst team was equally liable for termination selection.
Probability theory is the science of making decisions based on incomplete information. Thus, probability theory is applied in situations when it not possible to obtain sufficient information on which to base a more certain prediction of an outcome. The probability equation yields a probability level that is an expression of the likelihood of a specified outcome under specified conditions. The probability level is expressed in a range from 0 (no probability) to 1 (certainty). If one possessed sufficient information to arrive at a 0 or a 1, however, there would be no point in performing a probability analysis (Ash, 2008; Gnedenko & Khinchin, 1962).
In the Quant Investments case, the initial selection of any one of the four members of the analyst team was identical. The probability for any one of the four members of the analyst team was one-in-four, which would be expresses as p = 0.25. This probability level expressed the likelihood of an undesirable outcome for any one of the four members of the analyst team.
Following the decision by Quant Investments management of the member of the...

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