CFA Level I. Module 10 3 Lognormal Distribution, Simulations

[@RP-ml5hs]

lognormal at 05:52

[@gatsbyliu1084]

This is very useful, but how do we know if the stock follows the pattern lognormally?

[@lemahtab]

The assumption is that the stock returns are normally distributed, and because the future stock price is a log function of return, given by log(St/S0), the stock price variable has a lognormal distribution. Do note that even if the returns are not normally distributed, their sum/ mean will be normally distributed and so the stock price always has a lognormal distribution.

[@samuelcook7588]

THANKS