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how to calculate covarince of two outcomes with differnt probabilities,example the house will burn has a probability of 0.25,with the value of 40,80 of value if it does not burn,i know that i have to find deviations and mulltiply it by probabilities ,so should i use 0.25 in the product of deviations or 0.75,or i multiply each deviation by its respective probabilities and add the two answers to get covariance,i looked on the example with the icecream but wehad same probability of 1/3.Thank you.
I work through this in the free lectures.
However as is explained in the notes and the lectures, this cannot be asked in the exam. You cannot be asked calculations on portfolio theory any more, but you are expected to know the idea. That is why – as is explained in the notes – the calculations are still in the lectures, simply to help make sense of the idea.
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