FRM: Lognormal distribution
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- Опубликовано: 28 авг 2024
- Here I explain an idea that is confusing the first time you see it: a variable is lognormally distributed if its log (or natural log) is normally distributed. I use an example of future stock price: it the rate of return is normally distributed (it can be negative), the future stock price level is lognormally distributed (it cannot be negative!). For more financial risk videos, visit our website! www.bionicturtl...
Excellent illustration with a detailed Excel example. This is not an easy topic to explain and I believe you did a GREAT job. Thank you very much and appreciate all the efforts.
David, you are awesome!! I have seen your other videos and it has made understanding the concept so simple. I really appreciate your work. Keep doing the good work (thumbs up!!)
One point of confusion might be the use of the EXP() function to represent a rate of return. Laypeople think of an instrument that starts with a price of $10 growing to $11 at the end of the year as having an "annual interest rate of" (11/10=) 10%. The concept of exponential growth doesn't kick in until the multiple periods have elapsed. For example, in two years that same stock will grow to $10 x 1.1 x 1.1 = $12.1 Lastly, the natural log doesn't kick in until we get to continuous compounding.
Right, the motive is indeed to treat periodic asset RETURNS as continuous and normal. So, it does start with normal but for returns. If $10 goes to $11, that's a return of LN($11/10) = 9.5% because 10*EXP(9.5%) = $11. The return is normal which implies that price LEVELS or RATIOS ($11/$10) are lognormal. It is difficult idea but the meaning of lognormal is that the log [i.e., LN()] is normal.
all videos that come from bionic turtle are awesome!! thumbsss up
Great help in visualizing the concept. Thank you !
For anyone not knowing how to do the frequency, it’s using the FREQUENCY function in excel
Well, i don't know about geometric distribution. But if the distribution of price levels is lognormal, then its mean is different from its median (unlike the normal, where they are the same); i.e., future expected price median not equal to to future expected prce mean. So, there can be two meanings of expected average future price
Great illustration! Thanks, David.
Excellent David as ever.
+Pablo Noodles Thank you for watching! We are happy to hear that our video was so helpful!
How did you calculate the freuency here - really confusing me at the moment please clarify
Thank you so much!))
Hi David..1. Can you also explain calculation of mean and variance of the log normal distribution? 2. Usually, do you specify mu and sigma of X or mean and variance of log normal distribution to describe it? Thanks in anticipation!
In this example if you get a random standard normal variable of -3, then the random return would be -142%. This will lead the stock price to a negative number. How is that possible?
I would have thought it would have helped to show the normal distribution of the logged values of the stock price.
I'm still trying to grasp the basics...why would the normal distribution be applicable here? Couldn't you just randomly select a value from -50% to +50% to multiply your mean for at every trial?
Nice video!
Please kindly let us know how you got the Frequencies column. Otherwise we cannot plot the results. Thanks a lot.
You can probably do a countif of column E with conditions X=3 for instance to get the frequency for bin $3.
Awesome course!
Thank you for watching!
Awesome... Thanks! Very helpful!
Awesome video thanks bionic, one problem, for the bin column, 1) how do you know which numbers to list if it's completely random and the range is always changing, (e.g. 1-55 in one iteration, 1-78 in the next...), can you explain the how you made the bin and frequency columns? 2) also, can you do a simple probability example with the lognormal curve, e.g. what is the probability the stock trades between $10-$15? Thank you!
Hi David. Thanks for the video. I understand how to get the lognormal distribution but I don't understand how this is beneficial over a normal distribution. Why use a lognormal distribution to model asset prices?
Thanks.
Any chance you could provide the excel spreadsheet?
Thank you ! What is the formula used in ''Freq'' table ?
Hi David, thanks for the video. Let's assume I have a list of data that I believe to be lognormal, but I'm not sure. What can I do, in excel, to fit the distribution and see if my hypothesis is correct, and then use that fit in future simulations? Any ideas?
Have a nice day. I would like to produce normally distributed non-negative data with a mean of 50 and a standard deviation of 30. I want to do it with excel monte carlo simulation. For this reason I want to use lognormal distribution but negative values are produced also. If you could help with this situation, I would greatly appreciate it. thank you.
What represent the normal variable? is it the price at t0?
Where did you go to school ?
Genious
xls, please!!
this was asum...
Jesus ?