Binomial Distribution (& Quant in general)

I am having troubles trying to memorize the binomial distribution equations - is this an example of one of the “ugly rule” equations where you won’t need to know it for the exam? For Quant in general - what areas should I focus on? Should I be able to do everything, or just be able to calculate the variance of a portfolio and important topics like that?

At this point I would make sure you can do all of the problems with a formula sheet. Comprehension of what is actually happening is much more important than memorizing the formulas. I.e. for skewness, understand why it is the cubed differences in the equation, and why it is to the fourth power for kurtosis. Knowing the full formula is probably not necessary. Once you have that, the formula’s should intuitively make more sense, and then you can see where you stand at that point. There probably will be one or two you’ll need to memorize for the exam, but for the most part the exam is not ‘plug and chug’.

sbmarti2 Wrote: ------------------------------------------------------- > There probably will be one or two you’ll need to > memorize for the exam, but for the most part the > exam is not ‘plug and chug’. definitely, comprehension over mere memorization. Although I will admit memorizing the variance/covariance is kicking my ass.

Well, its no much the formula you need than the concept. If you can’t do the binomial here than when you get to option pricing on Level two (IF you get that far), your brain will explode. If you have any specific question on Binomials i can answer them here, or just email me. You should really focus mostly on the basics, like Standard/Dev variance, and hypoth testing, Z and T tests, when to use each. Confidence Intervals are the key! Know when you would use a F-test and Chi-square tests also.

Hmm. I come from an engineering background - understanding the math is no problem for me. However, due to the # of equations in engineering, we always would get formula sheets. My issue - I understand how to use the binomial probability equations (with the factorial exponents etc.) and can solve problems with the formula in front of me. However, I don’t feel that I can memorize this equation (and all of the degree of freedom corrections for skewness / kurtosis) in addition to all of the other material. Could there be (/will there be?) a question on the exam where you need to have the binomial probability distribution memorized?

Concentrating on a formula sheet for level one will be your kiss of death. I would say make sure you know the basics of this and move on. Like if you got a Question that told you a distribution had a kurtosis of 4, and skew of negative one. know what that means. Know your terms as well, Lepto - or whatever it is called. For the binomials, check what the LOS asks for. Just make sure understand the tree diagram and calc out the prob of a move up or down. This is extremely important even if you don’t get asked. Can you answer the LOGIC behind this basic binomial problem: A submarine fires 5 torpedoes at a target. Each torpedo has an exactly 20% chance of hitting the target. What is the probability exactly 2 hit the target? (explain how the answer is gotten to with out using the formula). If you can do that, you’ll be A-ok.