Central limit theorem: Difference between revisions
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''Financial maths.'' | |||
The central limit theorem states formally that the average of a large number of independent identically distributed random variables will have a normal distribution. | |||
The central limit theorem is important in sampling theory. It explains that sample means follow a normal distribution - regardless of the actual distribution of the parent population - and that the sample mean is an unbiased estimate of the parent population mean. | The central limit theorem is important in sampling theory. It explains that sample means follow a normal distribution - regardless of the actual distribution of the parent population - and that the sample mean is an unbiased estimate of the parent population mean. | ||
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== See also == | == See also == | ||
* [[Mean]] | |||
* [[Normal distribution]] | |||
* [[Sample]] | * [[Sample]] | ||
* [[Sampling]] | * [[Sampling]] | ||
[[Category:Identify_and_assess_risks]] | |||
Revision as of 20:05, 2 September 2018
Financial maths.
The central limit theorem states formally that the average of a large number of independent identically distributed random variables will have a normal distribution.
The central limit theorem is important in sampling theory. It explains that sample means follow a normal distribution - regardless of the actual distribution of the parent population - and that the sample mean is an unbiased estimate of the parent population mean.
The central limit theorem also explains why larger samples will - on average - produce better estimates of the parent population mean.
The central limit theorem is sometimes known as the law of large numbers.
