BUSINESS STATISTICS

Project On:
Importance of understanding probability in marketing of
financial products and services? A short essay.

Submitted To: Submitted by:

Dr. Gyanesh Jain Arti Rani
Faculty of- BS PBRM Batch-2
Probability plays a vital role in every field of human activity. In
particular, they are quantitative tools widely used in the areas of
finance. Probability in Finance is a tool for modelling financial markets
their risks and returns. Knowledge of modern probability and statistics
is essential for the development of economic and finance theories and
for the testing of their validity through robust analysis of real-world
data. For example, probability and statistics could help to shape
effective monetary and fiscal policies and to develop pricing models
for financial assets such as equities, bonds, currencies, and derivative
securities. The importance of developing robust methods for such
empirical analysis has become particularly important following the
recent global financial crisis in 2008, which has placed finance theories
under the spotlight.
There are a lot of real-world applications of probability in finance as
can be widely seen in portfolio expected returns and variance.
Probability in broad sense is term used to indicate vague possibility that
something might happen. It is also used as a synonym with chance.
Events that cannot occur simultaneously are called Mutually exclusive
events. e.g., Throw a die two events defines as event 1 occurring of odd
number on dice and event 2 occurrence of even number on dice, are
mutually exclusive events.
Let’s consider a practical example of probability in investment world
If we take a real example for analyst’s work, an investor concerns
centre on “returns”. i.e., what would be the return of a given portfolio.
We can define here the return on risky asset as an example of random
variable whose outcome is uncertain.
e.g., let’s assume a portfolio’s target return for next year is 10%. In this
case we can define 2 events portfolios
• Event 1 earns a return below 10%
• Event 2 portfolio earns a return of 10%
There are multiple advantages of including probability in the marketing
of financial products and services for decision-making.

• Probability in Finance is a tool for modelling financial markets

their risks and returns.
• Investors makes decisions of buying and selling that determine
asset prices, often draw on subjective probability. The best
example of this probability is share market and crypto currency.
• In investments related to financial products we often estimate the
probability of an event based on historical data; this probability is
called Empirical probability.
• Probability is essential for monetary instruments. For example,
equities, bond, and derivative securities these are the monetary
asset and their values can be assumed with their past performance
with the help of probability.
• Probability also helps in insurance. It not only helps to assume
the benefit of the company but also help the customer to assume
their return.
• In product management, banks use probability to predict the type
of customer and also, they assume that growth of product. Now a
days many products designs are according to customer choice and
it’s all depended upon assumption that the bank gets those type
of customer or not. For example, in axis bank there is one debit
card called liberty debit card mainly for those people who are
shopaholic so in this, the probability of getting are those types of
customers who like more shopping and travelling.
• Probability also helps to know the closing accounts, and
probability of customers taking up on cross sold items. The credit
score assigned to each client is a result of a statistical model that
predicts the probability of being a good paying client.
• Probabilities are used in most aspects of banking risk
management. The most common is credit risk in which a bank
can assume that whether the borrower will repay the loan or not.
It also helps to assume the loss rate of bank given by the defaulter
if the customer has not repaid the loan.
• Probability can help in identifying the different levels of risk that
a product or service can undergo. this risk involves past
experiments and market studies. Knowing your risk apatite can
lead to select the right marketing strategy and adequate
operational cost.
• Operational risk can also assume by the help of probability in
financial services. If there is system hacking or internal fraud in
the organisation then the loss can be predicted by the help of
probability. If we take an example of server down in bank there
is huge loss of bank and the bank can predict their loss by the help
of probability.
• Probability distribution can help in identifying the most probable
outcome, this will help any financial institution to channelize the
money in the right manner. By using a selective outcome
approach any product and service can determine its target
audience and competitive pricing.
• The market is large and probability is the key to understand and
shortlist the probable outcome. Profit margin in financial
institutions is low, with selective study they can identifying the
likable events. This will lead to a professional marketing
approach according to the customer base.
CASE STUDY OF FOUR BANKS IN ANAMBRA STATE)

ABSTRACT
Flow of people can be affected by geographical location. In location of
industry, these two are taken into consideration to reduce loss and
maximize profit. In banking industry, flow of customers in a banking
sector can be affected by location. This research is set to investigate
possible variation in queuing model of banks with geographical
location. For this study, four banks were randomly selected. Primary
data were used for the study. The results of the analysis shows that the
queue models depend on location of the bank and banks cited in similar
location has similar models. In like manner, blocking probability was
investigated using Hayward Approximation Estimate, Jag Arman
Estimate and Recursion Estimate. Blocking Probability computed
revealed that irrespective of location, Recursion Estimate is lower than
any other method used which implies that the method is highly
sensitive to the detection of blocking probability.

Keyword: Blocking Probability, Queuing, Estimates, Heyward

Approximation, Recursion.

Introduction:
Queuing theory is the mathematical study of waiting lines of customers
in a service system such as fuel stations, supermarket check-out
counters, post offices, cafeteria, and banking halls.
In queuing theory, a model is constructed so that important queuing
characteristics of the service systems can be obtained as a measure of
the service performance of the systems.
Examples of such characteristics are queue lengths (number of
customers waiting to be served), the waiting times involved, etc.
Arrivals at a service system may be drawn from a finite or an infinite
population. The distinction is important because the analyses are based
on different premises and require different equation for their solution.
A finite population refers to the limited size customer pool that will use
the service and, at times, form a line. The reason this finite
classification is important is because when a customer leaves its
position as a member of the population of users, the size of the user
group is therefore reduced by one, which reduces the probability of the
next occurrence. Conversely, when a customer is serviced and returns
to the user group, the population increases and the probability of a user
requiring service also increases. These finite classes of problems
require a separate set of formulas from that of the infinite population
case. An infinite population is one large enough in relation to the
service system so that the changes in the population size caused by
subtraction or addition to the population do not significantly affect the
system probabilities. In banking system, the arrival process consists of
the arrival rate of customers per unit time and the probability
distribution of inter-arrival times between successive customer arrivals.
The served in a specified time interval, the customer service time or the
distribution of inter-service time of successive customers. Blocking
occurs when a server is unavailable (unable to serve
the customers) caused by limited capacity. Blocking Probability is used
to determine the chance of occurrence of event that servers are not
serving customers. Most existing queuing models for banks do not
estimate blocking probability which is essential in queuing. Therefore,
blocking probability in queuing model is a challenge to be solved
especially in developing countries.

The study examines flow of customers and the blocking probability in

rural and urban banks in Anambra State. The banks covered in the study
are First Banks Plc, Abagana (Rural Area); Union Banks Plc, Abagana
(Rural Area); First Banks Plc, Ziks Avenue, Awka (Urban Area) and
Union Banks Plc, Ziks Avenue, Awka (Urban Area). Therefore, the
study is limited to observations in the selected banks in State.