On Monday, we will start Chapter 14 of the course packet, on parametric probability models. Main topics include:

  • the binomial distribution.
  • the Poisson distribution.
  • Monte Carlo simulation based on parametric models.

For Wednesday:

  • the normal distribution.
  • Monte Carlo simulation of stock portfolios.

Software

Please download the R scripts entitled parametric_probmodels.R (for Monday) and montecarlo_normal.R (for Wednesday) from the R Scripts tab above. We will spend a little bit of time going over these in class, and you should finish working through them outside of class.

Readings

By the end of this week, please finish Chapter 14 of the course packet. (Again, you can safely skip the subsection entitled “Advanced topic: a derivation of the binomial distribution.”)

In addition, please read the article “One match to go!,” by Spiegelhalter and Ng. This provides an interesting example of using the Poisson distribution as a parametric probability model, and it will help you on one of your homework problems.

For Monday of next week, please read through page 311 of Chapter 15.

Exercises

Exercises 8 this week are on parametric probability models. They are due in class on April 24.