- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 6. Simulation Methods
- Subject 1. Lognormal Distribution and Continuously Compounding
CFA Practice Question
Which of the following statements is true?
B. The lognormal distribution is used widely in the BSOPM.
C. The lognormal distribution is defined by its parameters.
A. The lognormal distribution has a long left tail.
B. The lognormal distribution is used widely in the BSOPM.
C. The lognormal distribution is defined by its parameters.
Correct Answer: B
The lognormal distribution is used widely in the BSOPM. BSOPM stands for the Black-Scholes Option Pricing Model, which is one of the areas where the lognormal distribution has many applications. The lognormal distribution has a long right tail. The defining parameters of the lognormal distribution are the parameters of a different distribution.
User Contributed Comments 3
| User | Comment |
|---|---|
| david22 | Just because the parameters of the lognormal are not its mean and variance does not mean that they do not define the distribution. |
| bobert | That is like saying, just because two random people aren't your parents does not mean they didn't give birth to you.... It is impossible to be the biological child of people who are not your biological parents. |
| ascruggs92 | Except for that the parameters of a Lognormal are its mean and variance. |