Unconditional probability P(A):- Also known as marginal probability is the one which dose not depend on any event (Eg. as stated in our lecture:- You buying Dish TV or Videocon D2H.
Conditional Probability P(A|B) :- Occurrence of one event affects probability of other (eg. You buying Dish TV conditional upon Buying Samsung TV), Denoted as P(A|B) = Probability of A (Buying Dish TV) Given (|) B (Buying Samsung).
Joint Probability (AB) :- (Multiplication Rule) Probability that both event will occur, P(AB)= P(A|B) X P(B).
Independent event:- occurrence of one event has no influence on other event: events are independent only if p(a|b) = p(a) or p(b | a) = p(b).
If these conditions are not satisfied then conditions are said to be dependent events
Mutually exclusive events:- happening of one event eliminate the possibility of happening of other event then both events are said to be mutually exclusive events. Hence joint probability will be zero between two
P(ab) = 0.
Remember the difference between two types of events :- you are likely to see question based on these two concepts in story form
Allows us to use information of outcome of one event to improve our estimates of the unconditional probability of another event.
P(A|B) = P(B | A)XP(A) / P(B)
P(A) and P(B) are total probabilities
Probability function :- p(x) is probability that random X will take value of x P(X=x) = P(x)
Two key properties of probability function
0 ≤ p(x) ≤1 & total of p(x) = 1
Continuous random variable :- No of possible outcomes infinite.
PDF probability density function= denoted as f(x) – this is derivative of CDF (cumulative distribution function) denoted as F(x)( capital F here)
Note- This concept is directly linked to chapter no 3 of quants Distribution hence we will cover all the aspects in that chapter.
Probability that at least one of two events will occur:- Addition rule of probability:- In this case we are looking for probability that at least A or B or both A and B will occur.
A. Events are not mutually exclusive event:-
P (A or B) = P(A) + P(B) – P(AB)
Due to double counting of P(AB), we are subtracting once so double counting problem can be eliminated.
So if we want to calculate probability that either A or B will happen but not both then we have to reduce complete portion of joint probability. Hence formula becomes
P( only A or B but not both) = P(A) + P(B) – 2 X P(AB)
= P(A or B) – P(AB)
B. Mutually exclusive events:- When events are mutually exclusive then there is no chance of common area or say joint probability between both which result in P(AB) = 0. Hence in that case
P (A or B) = P(A) + P(B)
Calculating Joint Probability of any number of events :-
On Role of two dice, “Joint probability” of getting two 4’s = 1/6 X 1/6 = 1/36
As events are independent we can apply simple multiplication rule
Calculation of Joint probability in case of independent events :-
Probability of A and B = P (A) X P (B)
Probability of A or B = P(A) + P( B)
School level math:-
P(A and B) Denoted as P(A n B)
P(A or B) Denoted as P(A U B)
Powered by BetterDocs
Your email address will not be published. Required fields are marked *
Save my name, email, and website in this browser for the next time I comment.
FALCON EDUFIN is leading FRM, CFA and CA Final exam preparation provider. With our unique approach we help students succeed in their exam.
Give Us A Call
Drop Us a Mail
GARP® does not endorse, promote, review, or warrant the accuracy of the products or services offered by Falcon Edufin of FRM®-related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to Falcon Edufin, nor is GARP® responsible for any fees or costs of any person or entity providing any services to Falcon Edufin. FRM®, GARP®, and Global Association of Risk Professionals™ are trademarks owned by the Global Association of Risk Professionals, Inc.
Number of items in cart: 0
Create a new account
Enter the destination URL
Or link to existing content