Chapter 68. Using the Lognormal Random Variable to Model Stock Prices

Questions answered in this chapter:

  • What is the lognormal random variable?

  • Is there a reason stock prices might follow a lognormal random variable?

  • How can I model the future price of any stock as a lognormal random variable?

  • How can I compute the probability that Microsoft’s stock price will exceed $38 a year from now?

Many people are interested in modeling the future price of a stock, a commodity such as oil or wheat, or a future exchange rate. For the last 40 years, the lognormal random variable has been the random variable most often used to model stock prices. In this chapter you will learn about why the lognormal random variable is a reasonable model for stock prices, and how ...

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