What's new

YouTube T2-9c Bayes Theorem, Three-state variable

Nicole Seaman

Director of FRM Operations
Staff member
This explores the answer to Miller's sample question in Chapter 6 of Mathematics and Statistics for Financial Risk Management. There are three types of managers: Out-performers (MO), in-line performers (MI) and under-performers (MU). The prior probability that a manager is an outperformer is 20.0%. But if we observe two years of market beating performance, (aka, evidence), then what is the posterior (updated) probability that the manager is an outperfomer?

Here is David's XLS: http://trtl.bz/010118-bayes-three-states

Last edited: