Page 101 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
P. 101
Session Unit 3:
10. Common Probability Distributions
LOS 10.n: Explain the relationship between normal and lognormal distributions and
why the lognormal distribution is used to model asset prices, p.231/232
Lognormal, ex –right skewed and
bounded from below by zero so that it is
useful for modelling asset prices which
never take negative values.
The natural logarithm, ln, of ex is x,
Hence, logarithms of lognormally distributed
random variables are normally distributed!
B. A lognormally distributed
variable is never negative.
