Monte Carlo Simulations
Monte Carlo simulations involve the creation of a computer-based model into which the variabilities and interrelationships between random variables are entered. A spread of results is obtained when the model is run many times – hundreds or thousands of times….
Monte Carlo Simulation vs. Historical Simulation
Monte Carlo simulation and historical simulation are both methods that can be used to determine the riskiness of a financial project. However, each method uses different assumptions and techniques to develop the probability distribution of possible outcomes.
CFA Level 1 Study Notes – Portfolio Management
Study Session 18 Reading 51 (48 in 2022) – Portfolio Management: An Overview – LOS 51a: describe the portfolio approach to investing – LOS 51b: describe types of investors and distinctive characteristics and needs of each – LOS 51c: describe defined contribution and…
CFA Level 1 Study Notes – Equity Investments
Study Session 12 Older Curriculum 2024 Curriculum Learning Module 1 – Market Organization and Structure LOS a: explain the main functions of the financial system LOS b: describe classifications of assets and markets LOS c: describe the major types of…
Activity Variation With Business Cycle
Resource Use During a Recession Resources required for the production of goods and services are closely related to the business cycle. Aggregate demand reduces with the beginning of a downturn resulting in the accumulation of inventories. As a result, companies…
Unconditional Vs Conditional Probabilities
Unconditional probability (also known as marginal probability) is simply the probability that an event occurs without considering any other preceding events. In other words, unconditional probabilities are not dependent on the occurrence of any other events; they are ‘stand-alone’ events….
Probability Rules
Probability rules are the concepts and facts that must be taken into account while evaluating the probabilities of various events. The CFA curriculum requires candidates to master 3 main rules of probability. These are the multiplication rule, the addition rule,…
Application of Probability Rules
Probability rules are the concepts and facts that must be taken into account while evaluating the probabilities of various events. The CFA curriculum requires candidates to master 3 main rules of probability. These are the multiplication rule, the addition rule,…
Independent vs. Dependent Events
Two or more events are independent if the occurrence of one event has no influence on the occurrence of the other event(s). Let us put this in annotations:
Unconditional Probability Using the Total Probability Rule
We can use the total probability rule to determine the unconditional probability of an event in terms of conditional probabilities on certain scenarios.
