A CDS is a bilateral contract between two counterparties. The protection buyer is buying insurance: he/she pays premiums in exchange for a payoff in case there is a CREDIT EVENT (a trigger)
The binomial is one of the basic distributions, yet surprisingly common in risk and quant finance. Here I take a look at its key properties and compare the formula to Excel's built in =BINOMDIST()
A balance sheet CDO transfers credit risk from the bank (originator) to investors. A key aspect of a CDO is that investors have different (tranched) securities.
I illustrate the confidence interval construction with an example: the P/E ratio of 28 companies. The point is to say with confidence (e.g., 95%) that the "true" population lies within an interval.
Bayes' Theorem formulas an intuitive idea: we adjust our perspective (the probability set) given new, relevant information. Formally, Bayes' Theorem helps us move from an unconditional probability (what are the odds the economy will grow?) to a conditional probability (given new evidence, what are the odds the economy will grow?)
When drawing an inference (from a sample statistic, about a population parameter), we cannot avoid errors. We inevitably must commit either a Type I or Type II error
The small sample is a 10-day series of Google's daily periodic returns. The question is, with 95% confidence, what is the true (population) average return? This is the essence of statistics, based on sample statistics (sample mean, sample variance) we are trying to infer population parameters (population mean).
Both count the ways that (r) objects can be taken from a group of (n) objects, but permutations are arrangements (sequence matters), while combinations are selections (order does not matter). For example, how many ways can you seat people at a table? That's permutation. How many poker hands are available in five-card draw? That's a combination
![Bayes\](http://img.youtube.com/vi/pPTLK5hFGnQ/2.jpg "Bayes\")
![Student\](http://img.youtube.com/vi/pqtG1vXg_f8/2.jpg "Student\")
