Statistical Distributions for Financial Asset Prices and Returns

Free CFA Level I lesson in Quantitative Methods. 11 min read, ~1,706 words.

Unconditional E(X) = Σ P(xᵢ)·xᵢ uses prior probabilities. Conditional E(X A) re-weights outcomes by P(scenario A). Four moments: mean (location), variance (spread), skewness (asymmetry), kurtosis (tail weight). Normal has skewness = 0, excess kurtosis = 0. Lognormal models prices (cannot go negative, right-skewed). Normal models continuously compounded returns. Covariance sign...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Check Your Understanding
• Exam Shortcuts

Learning objectives

• statistical distributions for financial asset prices and returns

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