Term
| Describe location-scale invariance: |
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Definition
property of the normal curve: states that random variables dervied from other normally distributed random variables will also be randomly distributed
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Term
| Describe summation stability: |
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Definition
| Property of a normal curve: For a collection of normally distributed random variables that are all independent from each other, summing the means from these random variables will produce a value which is also normally distributed. The sum of the varaiances from these normally distributed random variables will produce a normally distributed variance. |
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Term
| Define domain of attraction: |
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Definition
| Property of normal curve: results in the central limit theorem - this states |
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Term
| Describe the shape of the lognormal distribution: |
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Definition
- skewed to the right
- bounded on the left by 0 (so it's useful for modeling asset prices which never take negative values). |
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Term
| Describe the hazard rate of an exponentially distributed random variable? |
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Definition
| The rate it will take for an event to occur (often used to indicate the rate at which default will arrive) |
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Term
| When would chi-square distribution be used? |
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Definition
| when evaluating the variance of a normally distributed random variable |
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