Financial Risk Manager Part 1

A hypothesis in statistics is a statement about the value of a population parameter that is developed to test a theory or belief. It describes an assumption about the true value of the parameter, such as the mean or standard deviation. For example, a hypothesis may be formulated as "the mean monthly return on stock options is positive" or "the mean monthly return on stock options is greater than 10%". The purpose of a hypothesis is to test the validity and accuracy of a belief about the parameter, and to determine whether the observed data supports or contradicts the hypothesis.

Key points:

• Option A is too vague and doesn't specify it's about population parameters
• Option B describes prior knowledge or belief, not the formal hypothesis itself
• Option C describes hypothesis testing procedure, not the definition of hypothesis
• Option D correctly captures the essence: a formal statement about a population parameter used for testing theories