Lognormally distributed share returns and Monetary financial institution: Difference between pages

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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.
Monetary Financial Institutions (MFIs) are [[central bank]]s and other institutions the business of which is to take deposits and/or close substitutes for deposits from entities other than MFIs and, for their own account (at least in economic terms), to grant credits and/or make investments in securities.
 
Normal distributions have infinitely long ‘tails’ both upside and downside - so implying unlimited downside potential when used for modelling share returns.
 
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%. It is not theoretically possible to suffer a return of worse than -100%.
 
Lognormal distributions - unlike normal distributions - also have a limited downside, so they do not suffer from this theoretical shortcoming.
 
== See also ==
* [[Lognormal frequency distribution]]
* [[Normal distribution]]
* [[Volatility]]


In many contexts, MFIs excluding central banks are considered. So, for example, the Bank of England publishes statistics under the heading "Monetary financial institutions (excluding central bank) balance sheet". But conversationally and informally they are taken as relating to "MFIs".

Revision as of 11:55, 3 August 2014

Monetary Financial Institutions (MFIs) are central banks and other institutions the business of which is to take deposits and/or close substitutes for deposits from entities other than MFIs and, for their own account (at least in economic terms), to grant credits and/or make investments in securities.

In many contexts, MFIs excluding central banks are considered. So, for example, the Bank of England publishes statistics under the heading "Monetary financial institutions (excluding central bank) balance sheet". But conversationally and informally they are taken as relating to "MFIs".

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