A generalization of the Binomial distribution for more than two outcomes.
The Multinomial distribution extends the Binomial distribution to situations with more than two possible outcomes for each trial. While Binomial models the number of successes in a series of 'success/failure' trials, Multinomial models the number of times each of a set of possible outcomes occurs.
For example, instead of just a 'win' or 'loss', a trade could result in a 'big win', 'small win', 'breakeven', 'small loss', or 'big loss'. The Multinomial distribution can calculate the probability of observing a specific count for each of these categories over a series of trades.
Outcome | Probability () | Desired Count () |
---|---|---|
Win | ||
Loss | ||
Draw |