Statistical Concepts for the Marketplace''Trends'', whether in weather, finance, or gambling, hinge on the concept of probability. The study of probability and statistics sends shivers of dread through most people, and often probability is thought of as only having practical applications in the gambling arena. In fact, probability and statistics have scores of applications throughout finance. The entire philosophy of technical analysis is predicated on forecasting future price trends, fundamental analysis believes that financial statements may be a window into a company's future health, and the pricing of options and derivative products all hinge on some notion of a future price. Arbitrage falls under two categories, statistical and deterministic—both of which hinge on mathematical models involving statistics. In short, although one can effectively and profitably recognize patterns on a chart or plug values into proprietary pricing software—in order to fully understand, appreciate, criticize, and improve such analysis, one must understand the foundation of how the models are created. In short, one must understand notions of probability and statistical modeling. This four-session class covers the essentials of statistical thought, including detailed examples drawn from the financial marketplace. The emphasis is on the practical and the applied, and not on the theory. |
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