Lognormal Distribution for Stock Price
1. Context
In this short video from FRM Part 1 curriculum, we reason out (at an intuitive rather than a rigorous mathematical level) the moments of the distribution of (natural) log of stock price. Getting the mean and standard deviation of this distribution right comes in handy in determining confidence intervals or quantiles related to future stock price. The details of the readings in which this topic appears are given below:
| Area | Valuation and Risk Models |
| Reading | The Black-Scholes-Merton Model |
| Reference | John Hull, Chapter 15. The Black-Scholes-Merton Mode In Options, Futures, and Other Derivatives, 10th Edition (New York: Pearson, 2017). |