AF5343 - 202301 - Lecture 4

.pdf
School
The Hong Kong Polytechnic University **We aren't endorsed by this school
Course
AF MISC
Subject
Finance
Date
Apr 2, 2023
Pages
34
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AF5343: Quantitative Methods for Finance Duncan Wong 1 AF5343: Quantitative Methods for Finance Lecture 4 Instructor : Mr. Duncan Wong ( [email protected] )
AF5343: Quantitative Methods for Finance Duncan Wong 2 Chapter 4: Probability Concepts Fundamental Concepts Probability and related definitions Operational Rules for Probabilities Bayes Rule (Formula) Confusion Matrix (Optional)
AF5343: Quantitative Methods for Finance Duncan Wong 3 I. Probability and Operational Rules Probability allows us to make decisions in an environment of risk (from an investment point of view). A random variable is a variable whose outcomes (possible values) are uncertain. An event is a specified set of outcomes. Denote an event as A, B, ... Example 1 : Event E = {A portfolio's return < 10%}. As a portfolio manager, you might be concerned about how likely this event could occur.
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