Ralph Vince - Portfolio Mathematics

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ch02 JWBK035-Vince February 12, 2007 6:50 Char Count= 0


Probability Distributions 61

= 1 −. 05399093525 ∗




⎜⎜




1. 330274429 ∗. 683394433115


− 1. 821255978 ∗. 683394433114


+ 1. 781477937 ∗. 683394433113


−. 356563782 ∗. 683394433112


+. 31928153 ∗. 68339443311




⎟⎟




= 1 −. 05399093525 ∗



⎜⎜



1. 330274429 ∗. 1490587 − 1. 821255978 ∗


. 2181151 + 1. 781477937 ∗. 3191643


−. 356563782 ∗. 467028 +. 31928153 ∗


. 68339443311



⎟⎟



= 1 −. 05399093525 ∗(. 198299977 −. 3972434298


+. 5685841587 −. 16652527 +.2182635596)


= 1 −. 05399093525 ∗. 4213679955


= 1 −. 02275005216


=. 9772499478


Thus, we can say that we can expect 97.72% of the outcomes in a Nor-
mally distributed random process to fall shy of+2 standard units. This is
depicted in Figure 2.8.
If we wanted to know what the probabilities were for an event’s equal-
ing or exceeding a prescribed number of standard units (in this case+2),
we would simply amend Equation (2.21), taking out the 1−in the beginning
of the equation and doing away with the−Z provision (i.e., doing away with

FIGURE 2.8 Equation (2.21) showing probability with Z=+ 2
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