## Insight Things

### A scientific blog revealing the hidden links which shape our world

#### Tag: stochastics (page 1 of 2)

Those of you who already have tested for the variance of data from a normal distribution may have asked themselves how the link between normal variance and chi-squared distribution arises. Trust me: The story, which I will tell you, is an exciting one! more →

I like white sneakers and I don’t want them to become dirty. That’s why I always check on the next day’s precipitation probability. If I intend to leave only for a couple hours, then the breakdown of the rain risk is of particular interest to me. When comparing the probabilities on hourly and daily basis I could rarely figure out the relationship between both. Consider the following weather forecast:

Fictional weather forecast on daily and 6-hours basis

For simplicity I chose to present the rain risk for periods of 6 hours length. Anyway, in what way are the daily rain risk of 40% and its breakdown of 20% over 12 hours related? Can we trust the weather forecast’s statements anyway? This article will discuss the topic.

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Imagine that a friend of yours would like to play a game. Your friend writes down two different numbers on two separate slips which you cannot spot. Afterwards you are allowed to choose one of the slips and read the number written on it. The game’s goal is to make a rough guess on the value of the second number.

You think there is a 50:50 chance for guessing correctly? Although you may not believe it: The probability for a success is definitely higher when you apply the following strategy! more →

Having a model to predict the performance of a share would be great, wouldn’t it? In this article I will show that such a model indeed exists. From a statistician’s point of view, the rate of stock return follows a particular probability distribution (which is also one of the preconditions of the Black-Scholes model). Assuming that parameters remain stable over a period of time, we can also give probabilities for some rates of stock return. Got curious? more →

Quick question: Is BASF’s day-to-day rate of stock returns (shown below) distributed normally?

Day-to-day rates of return of BASF stock

Yes? In theory it isn’t! In theory rates of stock returns follow a lognormal distribution as I have shown in “On the distribution of stock return”. Unfortunately, most people don’t take the lognormal distribution serious, although it is very often at work! This article shows how the lognormal distribution arises and why its shape sometimes mistaken for a normal distribution. more →

Are you also annoyed when it comes to parking your car? I asked myself, whether marked parking spots are rather hurdles than helpers, and wrote this article 🙂 The goal is to investigate what’s better: Marked or unmarked parking space? more →

Back in 2010, I visited a casino for the first time with some of my friends. I suggested to try a roulette strategy which I heard about earlier. It advices to “double stakes”. We earned almost 30 bucks within an hour. Let me explain what we did! more →

Maybe you had to multiply means or expected values already. If you know, for instance, how often people go shopping on average and how much money they spent on their shopping tours on average then you could multiply both to obtain the average amount spent. In this post I will explain why multiplying means and expected values is a valid operation. more →