Probability
5 articles ~24 min
- Bayes' Theorem and Conditional Probability Bayes' theorem lets you update your beliefs when new evidence arrives. It is the foundation of Bayesian statistics and many machine learning algorithms.
- Common Probability Distributions Certain probability patterns appear over and over in finance. The normal, lognormal, binomial, Poisson, and exponential distributions each model different real-world phenomena.
- Law of Large Numbers and Central Limit Theorem Two theorems govern how averages behave as you collect more data. The law of large numbers says averages converge; the central limit theorem says their distribution becomes normal.
- Random Variables and Probability Distributions A random variable assigns a number to each outcome of a random process. Understanding random variables and their distributions is essential for modeling financial returns and risk.
- What Is Probability? Probability measures how likely something is to happen. Understanding probability is the foundation for all statistical inference and quantitative modeling.