• Congratulations to the Feedback Prize Draw winner for the September 2025 sitting. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • For every marked assignment, mock or tutorial for which you submit feedback, we will enter your name into the prize draw giving you the opportunity to win £150 of gift vouchers.

Standard Brownian Motion

S

sophieactrainee

Keen member
Hi there,

In one the tutorials, it was discussed that Standard Brownian Motion increments aren't leptokurtic enough? I.e. they following a N(0,t-s) distribution and don't have the following characteristics:

The reason being that

- the tails aren't fat enough (i.e. probability of big movements)
- the peaks aren't thin enough (i.e. probability of little movement)

My question is this:

Where in the theory are we told that we assume share prices have these characteristics in red?

Thanks
 
HI Sophie,

In CM2 it does say that share prices do not exhibit normally distributed increments (Chapter 9, Section 1) but the specific context you are referring to is mentioned in Subject CS2 (when they talk about Extreme Value Theory).

The CM2 syllabus does say that concepts are introduced in various subjects including CS2 and your tutor was providing context on why share prices do not show normally distributed increments.

Alvin.
 
You must log in or register to reply here.
Back
Top