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Chapter 4: Probability Trees and Conditional Expectations

Chapter 4: Probability Trees and Conditional Expectations (CFA Level 1): Key concepts explained with clear definitions, formulas, and exam-focused examples.

In this section

  • Random Variables, Expected Values, and Variances
    Random Variables, Expected Values, and Variances (CFA Level 1): Understanding Random Variables and Their Role in Finance, Concept of Random Variables, and Expected Value (Mean). Key definitions, formulas, and exam tips.
  • Probability Trees for Scenario Analysis
    Probability Trees for Scenario Analysis (CFA Level 1): Tool for Visualizing Uncertainty, Branching Out: Constructing Probability Trees, and Path Probabilities and Summation. Key definitions, formulas, and exam tips.
  • Conditional Probability and Bayesian Updating
    Conditional Probability and Bayesian Updating (CFA Level 1): Foundations of Conditional Probability, Formula, and Why This Matters in Finance. Key definitions, formulas, and exam tips.
  • Applications of Conditional Expectations in Investments
    Applications of Conditional Expectations in Investments (CFA Level 1): Understanding Conditional Expectation, Why Does Conditional Expectation Matter?, and Key Applications in Investments. Key definitions, formulas, and exam tips.
  • Risk-Neutral vs. Real-World Probability Measures
    Risk-Neutral vs. Real-World Probability Measures (CFA Level 1): Understanding the Two Probability Worlds, Basic Mathematical Foundations, and Why Do We Even Have Two Measures?. Key definitions, formulas, and exam tips.

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Chapter 3: Statistical Measures of Asset Returns
Chapter 5: Portfolio Mathematics