On Monday, we will 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.
- the normal distribution.
- Monte Carlo simulation of stock portfolios.
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.
For Wednesday, please follow the walkthrough on Monte Carlo simuluation of investment portfolios. A few of the details are different, but you’ll see how these can be easily adapted to this week’s homework problem.
To complete the first problem of your homework this week, you might find this video on Bayes’ rule helpful. This is optional, though – if you feel like you understand Bayes’ rule from the course packet enough to do the homework, then you might feel safe skipping this video.
By the end of this week, please finish Chapter 14 of the course packet. (To remind you, 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.
Exercises 8 this week are on Bayes’ rule and parametric probability models. They are due in class on April 23.