Conditional Probability
Probability of an event or outcome based on the occurrence of a previous event or outcome. Conditional probability is calculated by multiplying the probability of the preceding event by the updated probability of the succeeding event. Investopedia Says:
Conditional probabilities are contingent on a previous result. For example, suppose you are drawing three marbles - red, blue and green - from a bag. Each marble has an equal chance of being drawn. What is the conditional probability of drawing the red marble after already drawing the blue one? First, the probability of drawing a blue marble is about 33% because it is one possible outcome out of three. Assuming this first event occurs, there will be two marbles remaining, with each having a 50% of being drawn. So, the chance of drawing a blue marble after already drawing a red marble would be about 16.5% (33% x 50%). Related Terms:
A Priori Probability
Default Probability
Probability Distribution
Risk
Subjective Probability
Unconditional Probability
Value at Risk - VaR
Volatility |