APPENDIX B Basic Tools

In this appendix, we provide a very brief summary overview of some the main statistical tools that are mentioned in the text. There are no derivations or proofs but interested readers can access any number of text books on statistics and econometrics.

SUMMATION AND PRODUCT OPERATORS

Summation is indicated by the use of the Greek capital letter , pronounced sigma. Thus, we have

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The double summation operator is also used; thus

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The product operator is given by

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STANDARD BROWNIAN MOTION AND THE DYNAMICS OF THE ASSET-PRICE PROCESS

A normal random variable, also termed a Gaussian random variable, with mean 0 and variance l is defined by a probability density function of the form

(AB.1) numbered Display Equation

where

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A normally distributed variable x with mean 0 and variance 1 is denoted by xN(0,1). Given two real numbers a and b, then a + bx would be normally distributed ...

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