FRM-Quants

anbu.edu
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FRM-Quants

Postby anbu.edu » Tue Mar 19, 2013 3:38 pm

A conditional expectation involves:

A) determining the expected joint probability.
B) calculating the conditional variance.
C) estimating the skewness.
D) refining a forecast because of the occurrence of some other event.

Can you please explain the ans

lokesh1
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Joined: Tue Apr 09, 2013 10:22 am

FRM-Quants

Postby lokesh1 » Wed Apr 10, 2013 12:34 pm

Hey anbu

The solution for the question is D.
In case of conditional expectation (or probability), we refine the probability of an event because of the occurrence of some other event.
For eg.: When you roll a dice, the probability of getting an odd number is 0.5 and that of getting 1 is 1/6. Now, if we wish to calculate the conditional probability of getting 1 when it is known that an odd number has already shown up, then the value is 0.33 and not 1/6. So, the forecast has to be refined because of the occurrence of some other event.


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