Fundamentals of Probability Class 2

This class begins with an explanation of the AI Stack, showing how value flows across the AI ecosystem - from energy and data centres to chipmakers, AI models, and end-user applications. The class explains how AI CapEx strengthens the Investment (I) component of GDP. It shows how hyperscaler spending on AI infrastructure flows through the AI stack, supports corporate earnings, and contributes to economic growth, providing a real-world foundation for the probability concepts discussed later in the session. The session then covers Bayes' Theorem and conditional probability, teaching how probabilities are updated when new information arrives. Using examples from AI investments and credit-card fraud detection, students learn concepts like prior, posterior, joint and conditional probabilities, probability trees, and the total probability Rule. Finally, the class introduces conditional independence, solves FRM-style questions, and highlights exam-solving techniques, common mistakes, and practical applications in finance, risk management, and model validation