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Probabilistic Methods for Financial and Marketing Informatics by Xia Jiang, Richard E. Neapolitan

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Chapter 7

Investment Science

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An important problem in investment science is modeling the risk of a portfolio. In this chapter we present a Bayesian network for portfolio risk analysis. However, first we need to review standard topics in investment science because knowledge of this material is necessary to an understanding of portfolio risk analysis.

7.1 Basics of Investment Science

This section discusses the basics of the stock market and investing in stocks. Before that, however, we review the concept of interest.

7.1.1 Interest

We start with the following example:

Example 7.1

Suppose you currently have $1000, and you wish to save it for ...

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