EC4024 | Probability & Statistics in Finance |
Lecture 4

Today
Risk & Uncertainty
Define Probability/Statistics
Why is it used in Finance?
Examples

Mini Presentations

Risk & Uncertainty

Probability
It is a measure of how plausible an event is
We measure probability using a real number
between 0 and 1
(Percentage is clear?)
A probability of 0 means an event is
impossible
Probability of 1 means an event is certain
The probabilities of all the events in our
sample space add up to 1

Experiments

Histograms
80
60
40
20
200 400 600 800

Law of Large Numbers
Handout

Distributions

Bored?

Example: Hold’Em

Next Time
Read Cowles, 1933, in coursepack
Read Notes
Do Exercises