Expected Value
Expected value:
The expected value is a generalization of the weighted average. Trading firms often use it to determine the expected profit.
How to calculate it?
Within this course, we will calculate it by multiplying each possible outcome by its probability and then summing all of those values.
Task example:
We will work with the typical example: rolling a six-sided die.
- The probability of each number occurring is 1/6.
- Possible numbers to appear: 1, 2, 3, 4, 5, 6.
- Expected value = 1 * 1/6 + 2 * 1/6 + 3 * 1/6 + 4 * 1/6 + 5 * 1/6 + 6 * 1/6 = 3.5
It means that if you roll a six-sided die an infinite number of times, the average value you will receive is 3.5.
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Expected value:
The expected value is a generalization of the weighted average. Trading firms often use it to determine the expected profit.
How to calculate it?
Within this course, we will calculate it by multiplying each possible outcome by its probability and then summing all of those values.
Task example:
We will work with the typical example: rolling a six-sided die.
- The probability of each number occurring is 1/6.
- Possible numbers to appear: 1, 2, 3, 4, 5, 6.
- Expected value = 1 * 1/6 + 2 * 1/6 + 3 * 1/6 + 4 * 1/6 + 5 * 1/6 + 6 * 1/6 = 3.5
It means that if you roll a six-sided die an infinite number of times, the average value you will receive is 3.5.
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