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In order to begin discussing the modern "bleeding edge" techniques, we must first gain a solid understanding in the underlying mathematics and statistics that underpins these models.

One of the key modern areas is that of Bayesian Statistics.

We have not yet discussed Bayesian methods in any great detail on the site so far.

This article has been written to help you understand the "philosophy" of the Bayesian approach, how it compares to the traditional/classical frequentist approach to statistics and the potential applications in both quantitative finance and data science.

In the article we will: belief about an event, but our beliefs are likely to change when new evidence is brought to light.

Nevertheless, if we had not known from the start that both success and failure are possible, then we would have had to assign get more and more similar, which is intuitively clear: the more data we have, the less importance should be assigned to our prior information.If we repeat an experiment that we know can result in a success or failure, n times independently, and get s successes, then what is the probability that the next repetition will succeed?More abstractly: If X Since we have the prior knowledge that we are looking at an experiment for which both success and failure are possible, our estimate is as if we had observed one success and one failure for sure before we even started the experiments.The girls wear trousers or skirts in equal numbers; the boys all wear trousers.An observer sees a (random) student from a distance; all the observer can see is that this student is wearing trousers. The correct answer can be computed using Bayes' theorem.




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