Here is a simple conditional probability table one might use to gauge the potential risks and rewards stemming from the Greek credit negotiations. The table considers 3 paths which may arise from ongoing talks. It assigns a probability for each and what an investor might expect for market returns under each scenario.
Given recent events, the probabilities in the table have been updated. The changes have produced an increase in risk metrics but not a subsequent increase in expected returns for European equity markets. The next 2 weeks will be very interesting. The Greek payment(s) are due at the end of the month and any news and information will be watched very closely.
The likely scenario remains some sort of compromise and at least a short-term resolution. But, that outcome has a lower probability today than it did a month ago.
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