Articles
Standard Normal Distribution
A normal distribution can be described using just two parameters, namely (μ), mean and variance (σ2). In a normal distr...
Confidence Intervals for a Normal Distribution
A confidence interval is an interval in which we expect the actual outcome to fall with a given probability (confidence)...
Univariate Vs. Multivariate Distribution
A univariate distribution refers to the distribution of a single random variable. Note that the above characteristics we...
Normal Distribution
The normal distribution is the well-known bell-shaped curve depicted below. The bell-shaped curve comes from a statistic...
Continuous Uniform Distribution
We know that a discrete uniform random variable is a discrete random variable for which the probability of each outcome ...
Tracking Error and Tracking Risk
Tracking error is a measure of how closely a portfolio follows its benchmark. A tracking error of zero means that the po...
Stock Price Movement Using a Binomial Tree
The future price movement of a stock can be approximated using a binomial tree. Let’s say the current stock price is S....
Bernoulli and Binomial Distribution
A Bernoulli random variable is a random variable that takes a value of 1 in case of a success and a value of 0 in case o...
Discrete Uniform Random Variable
A discrete uniform random variable is a discrete random variable for which the probability of each outcome is the same. ...
Cumulative Distribution Function
We can also construct a cumulative distribution function for a random variable. A cumulative distribution function gives...
Discrete Vs. Continuous Random Variable
Discrete Random Variable A random variable is said to be discrete if the total number of values it can take can be count...
What is a Probability Distribution
We know that a random variable is an uncertain quantity or a number. Its value is determined by chance. For example, the...
Permutation and Combination Formula
Combination Formula This is a special case of multinomial formula where the types of labels k=2. This means that the n o...
Multiplication Rule of Counting
Counting problems have to do with counting the total number of outcomes or logical possibilities of something. For examp...
Bayes’ Theorem
Bayes’ Theorem formula, also known as Bayes’ Law, or Bayes’ Rule, is an intuitive idea. We adjust our perspective (the p...
Variance and Standard Deviation of a Portfolio
We learned about how to calculate the standard deviation of a single asset. Let’s now look at how to calculate the stand...
Expected Value of a Portfolio
We earlier learned about how to calculate the expected value, variance, and standard deviation of a single random variab...
Calculating Covariance and Correlation
Both correlation and covariance are indicators of the relationship between two variables. They indicate whether the vari...
Conditional Expected Values
We can use the concept of conditional probabilities to arrive at the conditional expected values. Conditional expected v...
Calculating Variance and Standard Deviation of Stock Returns
We can also calculate the variance and standard deviation of the stock returns. The variance will be calculated as the w...
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