Conditional Expectation: A different kind of expectation
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1. Context
In this short video, we cover the concept of conditional expectation, a concept that is relevant to both FRM Part 1 and FRM Part 2. We first understand conditional expectation as a conditional probability weighted average of a random variable, and then the unconditional probability weighted average of a ‘transformed random variable’- the latter being more suitable for our applications in Financial Risk Management. The details of the reading in which this topic appears are given below:
| Area | Quantitative Analysis |
| Reading | Basic Statistics |
| Reference | Michael Miller, Chapter 3. Basic Statistics In Mathematics and Statistics for Financial Risk Management, 2nd Edition, (Hoboken, NJ: John Wiley & Sons, 2013). |