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imported>Doug Williamson |
imported>Administrator |
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| If share returns are lognormally distributed it means that the logarithm of [1 + the share return] has a normal probability distribution.
| | Redemption. |
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| Normal distributions have infinitely long ‘tails’ both upside and downside - so implying unlimited downside potential when used for modelling share returns.
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| But the theoretically worst outcome for a share investor is to lose the whole of their investment - in other words a negative return of -100%.
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| It is not theoretically possible to suffer a return of worse than -100%.
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| Lognormal distributions - unlike normal distributions - also have a limited downside, so they do not suffer from this theoretical shortcoming.
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| == See also == | | == See also == |
| * [[Lognormal frequency distribution]] | | * [[Redemption]] |
| * [[Normal frequency distribution]]
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| * [[Volatility]]
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| [[Category:The_business_context]]
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| [[Category:Financial_products_and_markets]]
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Revision as of 14:20, 23 October 2012