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Foundations of Probability

  • What is Probability?
  • Theoretical vs Empirical Probability
  • Three Views of Probability
  • Sample Space and Events
  • Axioms of Probability
  • Independence and Expectation
  • Variance and Standard Deviation
  • Covariance and Correlation
  • Key Inequalities

Set Theory & Combinatorics

  • Set Operations in Probability
  • Counting Methods
  • Advanced Counting

Conditional & Bayesian Probability

  • Conditional Probability
  • Bayes' Theorem
  • Law of Total Probability

Random Variables & Distributions

  • What is a Random Variable?
  • Discrete vs Continuous
  • PDFs and CDFs
  • Expectation, Variance, and Moments

Discrete Distributions

  • Bernoulli and Binomial
  • Poisson and Geometric
  • Negative Binomial and Hypergeometric

Continuous Distributions

  • Uniform and Normal
  • Exponential, Gamma, Beta
  • Heavy-Tailed Distributions

Limit Theorems

  • Law of Large Numbers
  • Central Limit Theorem
  • Convergence in Probability vs Distribution

Frequentist Inference

  • Confidence Intervals
  • Hypothesis Testing
  • p-values and Statistical Decisions
  • Type I and Type II Errors
  • Power and Effect Size
  • Bootstrapping and Resampling

Advanced Probability Tools

  • Law of the Unconscious Statistician
  • Moment Generating Functions
  • Characteristic Functions
  • Markov Chains
  • Stationary Distributions

Bayesian Inference

  • Bayesian Philosophy
  • Prior, Likelihood, Posterior
  • Conjugate Priors
  • MCMC and Modern Computation

Regression Analysis

  • Ordinary Least Squares
  • Multiple Linear Regression
  • Regression Diagnostics
  • Regularization
  • Logistic and Generalized Linear Models

Multivariate Statistics

  • Joint, Marginal, and Conditional
  • Multivariate Normal
  • Covariance Matrices
  • Correlation vs Causation
  • Principal Component Analysis

Stochastic Processes

  • Random Walks
  • Poisson Processes
  • Brownian Motion
  • Itô's Lemma
  • Martingales
  • Geometric Brownian Motion

Simulation & Approximation

  • Monte Carlo Simulation
  • Variance Reduction
  • Bootstrapping for Finance
  • Quasi-Monte Carlo

Time Series

  • Stationarity and Autocorrelation
  • AR, MA, and ARIMA
  • GARCH and Volatility Clustering
  • Cointegration and Pairs Trading
  • Kalman Filters

Information Theory

  • Shannon Entropy
  • Kullback–Leibler Divergence
  • Mutual Information
  • Maximum Entropy

Linear Algebra

  • Vectors, Norms, and Inner Products
  • Matrix Operations
  • Eigenvalues and Eigenvectors
  • Singular Value Decomposition
  • Positive Definite Matrices
  • Numerical Stability

Calculus & Optimization

  • Multivariate Calculus
  • Lagrange Multipliers
  • Convex Optimization
  • Gradient Descent and Variants
  • Stochastic Calculus Primer

Machine Learning Fundamentals

  • Supervised vs Unsupervised
  • Bias–Variance Trade-off
  • Cross-Validation
  • Tree-Based Methods
  • Support Vector Machines
  • Clustering and Dimensionality Reduction
  • Classification Metrics

Deep Learning

  • Feedforward Networks
  • Backpropagation
  • Optimizers and Schedules
  • Regularization in DL
  • Architectures for Finance
  • Loss Functions

Options Pricing

  • Payoffs and Put–Call Parity
  • Risk-Neutral Valuation
  • Binomial Trees
  • Black–Scholes
  • The Greeks
  • Volatility Smile and Surface
  • Exotic Options

Portfolio Theory

  • Mean–Variance Optimization
  • CAPM and Factor Models
  • Sharpe, Sortino, and Information Ratio
  • Black–Litterman
  • Risk Parity

Trading & Risk Applications

  • Value-at-Risk
  • Expected Shortfall
  • Backtesting
  • Market Making Basics
  • Execution and Market Microstructure
  • Statistical Arbitrage
Study Guide/Bayesian Inference
Section 10 · Lesson 10.42

Conjugate Priors

Pairs of distributions where the math stays in the family.

When the posterior is in the same family as the prior, the prior is called conjugate to the likelihood. Conjugate analysis gives closed-form posteriors and turns Bayesian updating into mechanical parameter arithmetic.

The most common conjugate pairs:

  • Beta is conjugate to Bernoulli/Binomial.
  • Gamma is conjugate to Poisson and Exponential rates.
  • Normal-Inverse-Gamma is conjugate to Normal with unknown mean and variance.
  • Dirichlet is conjugate to Multinomial.

Why bother? Closed-form updates are fast and sanity-checkable, no MCMC needed. Even when your final model uses flexible priors and numerical sampling, a conjugate baseline gives you intuition for what the data are saying and a check on the more complex code.

Conjugate models are especially handy in production systems where Bayesian updates need to happen on every event — A/B test dashboards, click-through rate estimators, multi-armed bandits.

Which prior is conjugate to a Poisson likelihood with unknown rate?

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MCMC and Modern Computation