Lessons
- Probability - Basic Terminology
- Two Defining Properties of Probability
- Empirical, Subjective and Priori Probability
- State the Probability of an Event as Odds
- Unconditional and Conditional Probabilities
- Multiplication, Addition and Total Probability Rules
- Joint Probability of Two Events
- Probability of Atleast One of the Events Occuring
- Dependent Vs. Independent Events in Probability
- Joint Probability of a Number of Independent Events
- Unconditional Probability Using Total Probability Rule
- Expected Value of Investments
- Calculating Variance and Standard Deviation of Stock Returns
- Conditional Expected Values
- Calculating Covariance and Correlation
- Expected Value of a Portfolio
- Variance and Standard Deviation of a Portfolio
- Bayes’ Theorem
- Multiplication Rule of Counting
- Permutation and Combination Formula
Two Defining Properties of Probability
There are two important properties of probability.
- The probability of an event E is between 1 and 0, i.e., 0 < P(E) < 1.
- The sum of probabilities of all mutually exclusive and exhaustive events is equal to 1.
These two properties together define probability.
When we roll a die, the events 1, 2, 3, 4, 5, and 6 are mutually exclusive and exhaustive. The probability of any event occurring is between 0 and 1. The sum of probabilities of all these 6 events is equal to 1.
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