Microsoft PowerPoint - PoF.ppt

Empirical features of returns 23

ƒ

Usually returns

aren’t normal distributed

!

-Skewness

≠

0

• Kurtosis

≠

3, usually kurtosis > 3 (“leptokurtic”, i.e. the distribution is

more strongly concentrated around

the mean than the normal and

assigns correspondingly higher probabilities to extreme values;

fat

tails

)

ƒ

Ä

Prices aren’t lognormal distributed!

Single-period random cash flows: Stocks