QF106: Fundamentals of Probability for Finance

Course Catalog Description


This course is designed for undergraduate students in Quantitative Finance, but would be potentially useful to any student in the School of Business.

This course is designed to provide students with a strong foundation of the underlying concepts, so that they will be prepared when they encounter them in later courses. To further this focus, this course will provide examples from within the Quantitative Finance discipline to provide perspective on many of these topics. The focus of this course is on developing the correct mindset to approach problems in probability and in ways to think about problems

Campus Fall Spring Summer
On Campus X X
Web Campus


Professor Email Office
Thomas Lonon
Tlonon@stevens.edu Altorfer 303

More Information

Course Outcomes

By the end of this course, the students will be able to:

  • Determine the possible outcomes of an event.
  • Assess the probability of events, using standard random variables.
  • Determine the expectation and variance of random variables
  • Apply probabilistic thinking to conceptualize issues in Finance

Course Resources


Ross, Sheldon, A First Course in Probability, Prentice Hall, 2005.

Additional References

Ghahramani, Saeed, Fundamentals of Probability with Stochastic Processes, Pearson Prentice Hall, 2005.

Walpole, Myers, Myers, Ye, Probability and Statistics for Engineers and Scientists, Prentice Hall, 2012. Ross, Sheldon, Introduction to Probability Models, Elsevier, 2007.


Grading Policies

Assignments: There will be around 10 homework assignments throughout the semester, with problems either taken from your textbooks or created by the instructor.

The assignments and their weights are as shown below:

  • Homework - 30%
  • Exam - 40%
  • Final Exams- 30%
  • TOTAL - 100%

Please note that your grade will be determined solely on the work you present over the course of the semester. No consideration such as your desire for a better grade for academic standing or job offers will be considered.

Extra Credit: On some of the homework assignments and possibly on the exams, there will be the occasional extra credit problem. This is the only source of extra credit for the course. There are no "extra assignments" that students can do to raise their average outside of the ones assigned. There are no exceptions, don't even bother coming to me and asking about extra work at the end of the semester, as I will only direct your attention to this part of the syllabus.

Lecture Outline

Topic Reading
Week 1 Set Operations Venn Diagrams
Week 2 Sample Spaces, Combinatorics, and Elementary Probability
Week 3 Conditional Probability
Week 4 Independence
Week 5 Exam 1
Week 6 Random Variables, Discrete Probability Distributions
Week 7 Examples of Common Discrete RV’s
Week 8 Analyzing the Distribution of Discrete RV’s
Week 9 Combinations of Random Variables and CDF's
Week 10 Exam 2
Week 11 Continuous Probability Distributions
Week 12 Examples of Common Discrete RV’s
Week 13 Analyzing the Distribution of Continuous RV’s
Week 14 Review & Catch-up