Probabilistic Analysis

Probabilistic Analysis tries to describe the probability distribution of economic indexes when the factor follows a random distribution.

Probability Tree for Discrete Random Variables

Describe the probabilities of  each cash flow.

Calculate the expectation and variation of NPW.

Continuous Random Variables

All cash flows are assumed to be identically distributed and statistically independent.

NPW is a linear combination of all independent cash flows.

If the variables are dependent, the expectation will not be affected, but the variance should consider the degree of dependence.