Today we discuss probability in finance and why it is important for investors to have a good understanding of probability theory. Probability theory is widely applicable in all areas of finance. Probability allows financial professionals to calculate things like expected value and to price derivatives. The expected value of an investment is simply the probabilities of the various outcomes multiplied by the various payoffs in the different scenarios. Probability is used everywhere from valuing a simple equity investment, to pricing exotic derivatives. The insurance industry is almost entirely built upon probability calculations, and an important component of credit is the probability a loan will be repaid.

In Patrick Boyles' book “Statistics For The Trading Floor” (available at this link https://amzn.to/3fcQrIK) he works through all of the important probability calculations and how quantitative methods can be applied in stock market analysis.

In the video Patrick mentions professional poker player Annie Duke and her book Thinking in Bets, available at this link. https://amzn.to/33bnt9F

Patricks' Books:
Statistics for Traders: https://amzn.to/3eerLA0
Financial Derivatives: https://amzn.to/3kwsPSr
Corporate Finance: https://amzn.to/3fn3rvC

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