Denotation p(x) = P(X = x)

(pdf) Hàm mật độ xác suất

Probability density function 0 ≤ p(x) ≤ 1
(pdf) Characteristics
Interpretation of probability distribution
∑p(x) = 1
(2 cách để diễn giải một phân phối xác suất)

Denotation F(x) = P(X ≤ x)

Cumulative
distribution function
(cdf) Characteristics 0 ≤ F(x) ≤ 1

(cdf) Hàm phân phối tích lũy

Uniform distribution: probability distributions
with equally likely outcomes

outcomes are discrete and have the same probability

Discrete uniform
distribution
(n outcomes) pdf: p(1) = p(2) = p(3) = ... = p(n) (prob cho 1 outcome = giá trị cụ thể)

Characteristics
cdf: F(x) = P(X ≤ x)
Discrete random variable

(biến rời rạc)

two outcomes “failure” and “success”
Bernoulli trial
the trials are independent, with the
probability of success is constantly p

Binomial distribution
variable X where X is the number of successes in n Bernoulli trials
(2 outcomes only)
Definition of probability function: the probabilities
Binomial random variable Formula:
of the possible outcomes of a random variable

Binomial tree

Uniform distribution

defined over a range that spans between

Continuous uniform Outcomes can only occur between a and b
a (lower limit) and b (upper limit)
distribution
(prob cho 1 khoảng > 0)
pdf:
(prob cho 1 outcome = 0)
R4: Common probability distribution
Characteristics

cdf:
(Phân phối xác suất)

Type something

Skewness = 0

Characteristics
Kurtosis = 3 and excess kurtosis = 0

mean = mode = median

probabilities of outcomes further above and below the

Random variable mean get smaller and smaller but do not go to zero

Univariate normal distribution probability of a single random variable (need 1 mean and 1 var to describe)

probability of a group of
related random variable

Multivariate normal distribution

n means of the n
(need mean, var, correlation to describe)
Normal distribution series of returns
multivariate normal
(phân phối chuẩn) distribution for the returns
on n assets n variances of the
n series of returns

0.5n(n – 1) pair-​wise
correlations

Continuous random variable

(biến liên tục)

Confidence intervals

normal distribution that has been

standardized so that it has a mean of 0
and a standard deviation of 1
Standard normal distribution
(phân phối chuẩn tắc) z-value
Formula

Application: using z-​table

Type something
to determine probability

Shortfall risk is the probability that a portfolio value or return will fall below a particular target
Shortfall risk (or a minimum acceptance return) over a given period.

Assumption
Application: Roy’s safety first criterion
reward/unit of risk
Formula:

Interpretation: The higher SFR, the more optimal a portfolio is

function:

skewed to the right

Charatceristics:
Lognormal distribution useful for modeling asset prices
bounded from below by zero
which never take negative values

Application: determine continuously compounded

annual rate for 2 consecutive periods:

fatter tail than normal distribution

Student’s t-​distribution df = n – 1

the shape of t-​distribution approaches normal distribution when df increases

asymmetrical (positively skewed)

Chi-​square distribution
does not take on negative values

asymmetrical distributions bounded from below by 0

F distribution
the shape of F-​distribution approaches normal distribution when both the numerator (df1)
and the denominator (df2) degrees of freedom increase

Monte Carlo simulation