European Financial Stability Facility and Lognormal frequency distribution: Difference between pages

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(EFSF).
A lognormal distribution is one where the logarithm - for example log(X) or ln(X) - of the variable is normally distributed.  


The European Financial Stability Facility was established in 2010 as a temporary rescue mechanism to safeguard financial stability in Europe by providing financial assistance to selected Euro zone Member States.
Lognormal distributions have a minimum - usually 'worst case' - value, whilst having an infinitely high upside.


The EFSF provided assistance to Ireland, Portugal and Greece.
A simplified illustration is set out below.


A simple (non-symmetrical) lognormal distribution includes the following values:


The EFSF's role in providing further financial assistance was replaced by the European Stability Mechanism (ESM) in 2012.
0.01, 0.1, 1, 10 and 100.


The median - the mid-point of the distribution - being 1.


However, the EFSF continues to operate in order to:
This distribution is skewed: most of the values being in the lower (left) part of the distribution, the upside being infinitely high, and the downside limit being 0.
*Receive loan repayments from Ireland, Portugal and Greece.
*Make interest and principal payments to holders of EFSF bonds.
*Roll over outstanding EFSF bonds, as the maturity of loans provided to Ireland, Portugal and Greece is longer than the maturity of outstanding bonds issued by the EFSF.


The logs - for example to the base 10 - of these values are:


== See also ==
log(0.01), log(0.1), log(1), log(10) and log(100)
* [[euro zone]]
 
* [[European Stability Mechanism]]
= -2, -1, 0, 1 and 2.
* [[Facility]]
 
* [[Financial ]]
When the parent values are lognormally distributed, the transformed (log) values follow a (symmetrical) normal distribution.
* [[Financial crisis]]
* [[Financial Conduct Authority]]  (FCA)
* [[Financial stability ]] 
* [[Financial Stability Board]]
* [[Financial Stability Forum]] 
* [[Financial Stability Oversight Council]] 
* [[Financial stability ratio]] 
* [[Financial Stability Report]] 
* [[Fiscal]]
* [[Stability Bond]]


So for example the mean, mode and median of the log values above (including -2, -1, 0, 1 and 2) would all be the same, namely the middle value 0.


==External link==
[https://www.esm.europa.eu/efsf-overview Before the ESM - EFSF - the temporary fiscal backstop]


[[Category:The_business_context]]
== See also ==
[[Category:Financial_risk_management]]
* [[Frequency distribution]]
* [[Leptokurtic frequency distribution]]
* [[Lognormally distributed share returns]]
* [[Median]]
* [[Normal frequency distribution]]

Revision as of 10:58, 22 August 2013

A lognormal distribution is one where the logarithm - for example log(X) or ln(X) - of the variable is normally distributed.

Lognormal distributions have a minimum - usually 'worst case' - value, whilst having an infinitely high upside.

A simplified illustration is set out below.

A simple (non-symmetrical) lognormal distribution includes the following values:

0.01, 0.1, 1, 10 and 100.

The median - the mid-point of the distribution - being 1.

This distribution is skewed: most of the values being in the lower (left) part of the distribution, the upside being infinitely high, and the downside limit being 0.

The logs - for example to the base 10 - of these values are:

log(0.01), log(0.1), log(1), log(10) and log(100)

= -2, -1, 0, 1 and 2.

When the parent values are lognormally distributed, the transformed (log) values follow a (symmetrical) normal distribution.

So for example the mean, mode and median of the log values above (including -2, -1, 0, 1 and 2) would all be the same, namely the middle value 0.


See also