Articles
Expected Value of Investments
Expected value is an important concept in investments. An investor will make use of expected value to estimate the expec...
Unconditional Probability Using Total Probability Rule
As we learned earlier, the total probability rule determines the unconditional probability of an event in terms of proba...
Joint Probability of a Number of Independent Events
If two events are independent, then the joint probability of these two independent events is calculated as: P(A and B) =...
Dependent Vs. Independent Events in Probability
Two events are said to be independent if the occurrence of one event is in no way affected by the occurrence of the othe...
Probability of Atleast One of the Events Occuring
This refers to the addition rule. The additional rule determines the probability of atleast one of the events occuring....
Joint Probability of Two Events
Joint probability refers to the multiplication rule of probability. This is the probability that both the events will oc...
Multiplication, Addition and Total Probability Rules
Addition Rule The additional rule determines the probability of atleast one of the events occuring. If A and B are mu...
Unconditional and Conditional Probabilities
Let’s say you are asked the following question: What is the probability of your portfolio earning a return greater than ...
State the Probability of an Event as Odds
The probabilities can also be stated in terms of odds. For example, odds for an event or odds against an event. Let’s s...
Empirical, Subjective and Priori Probability
There are three types of probabilities: Empirical Probability Based on observed or historical data. Subjectiv...
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...
Probability - Basic Terminology
Before we learn about the probability concepts, it is important to know the basic terminology. Random Variable A rando...
Sharpe Ratio
While deciding about what investments to make, one should weigh the rewards versus the risks of the investment opportuni...
Coefficient of Variation
We earlier learned about calculating the variance and standard deviation for a set of data. Standard deviation as a meas...
Chebyshev’s Inequality
Chebyshev’s Inequality is used to describe the percentage of values in a distribution within an interval centered at the...
Variance and Standard Deviation
Risk is the possibility that actual returns might differ, or vary, from expected returns. In fact, actual returns will m...
Range and Mean Absolute Deviation
In investment management, one of the most important things for an investor is the trade-off between the returns and risk...
Quartiles, Quintiles, Deciles, and Percentiles
A quantile refers to a value at or below which a stated fraction of the data lies. Quantile is a general term, and we ha...
Calculating Median and Mode of a Data Set
Median Median refers to the midpoint or the middle value of a data set after sorting the values in ascending or descendi...
Calculating Harmonic Mean
Harmonic mean is calculated by dividing the number of observations (n) by the sum of reciprocals of all observations. ...
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