Hands-On Machine Learning for Algorithmic Trading

How to update assumptions from empirical evidence

The theorem that Reverend Thomas Bayes came up with over 250 years ago uses fundamental probability theory to prescribe how probabilities or beliefs should change as relevant new information arrives. The following quote by – John Maynard Keynes captures the Bayesian mindset:

"When the facts change, I change my mind. What do you do, sir?"

It relies on the conditional and total probability and the chain rule; see the references on GitHub for reviews of these concepts.

The belief concerns a single or vector of parameters θ (also called hypotheses). Each parameter can be discrete or continuous. θ could be a one-dimensional statistic like the (discrete) mode of a categorical variable or a (continuous) ...