Financial Derivatives/Notions of Probability Theory

=Notions of Probability Theory=

Here we introduce the notions of probability theory essential for the understanding of the book. The interested reader is referred to more thorough accounts of probability theory.

Discrete distributions
For a thourough list of discrete distributions and their properties the interested reader is referred to Wikipedia on discrete distributions.

Binomial Distribution
The binomial distribution of parameters $$n \in \mathcal{N}$$ and $$p \in [0,1]$$

$$P(X=k) = 	{n \choose k} p^k (1-p)^{n-k}$$

Poisson distribution
The poisson distribution with parameter $$\lambda>0$$, the intensity

$$P(X=k) = \frac{\lambda^k}{k!} e^{-\lambda}$$