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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Normal vs Lognormal Distributions

Normal vs Lognormal Distributions

Abdulla Javeri

30 years: Financial markets trader

In previous videos, Abdulla outlined the basic features of normal and lognormal distributions and their essential characteristics. In this video, Abdulla clarifies those differences in graphical form.

In previous videos, Abdulla outlined the basic features of normal and lognormal distributions and their essential characteristics. In this video, Abdulla clarifies those differences in graphical form.

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Normal vs Lognormal Distributions

3 mins 58 secs

Key learning objectives:

  • Briefly outline the difference between normal and lognormal distributions

Overview:

The video demonstrates a quick outline of the differences between normal and lognormal. The differences show up primarily through the shape of the curve given which figure is used on the x-axis.

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Summary

What is the difference between normal and lognormal distributions?

We already know that in a normal distribution the numbers on the x axis are likely to be prices, percentage returns or indeed natural logs. They’re all normally distributed resulting in the bell shaped curve in each case. Because we’re using different units on the x axis, the differences don’t show up. To see them clearly, we’ll fix the x axis with a price scale and superimpose the probabilities associated with those prices using the two distributions.

Over to the lognormal distribution. In the log column we’ll convert the price into what is often referred to as a log return. Recall that we can think of the natural log as a continuous rate of return. In other words at what continuous rate would we need to compound or discount to get from the mean to any price interval.

To conclude. If prices are normally distributed we get the standard bell shaped curve. In a lognormal distribution, the curve will be bell shaped if logs are used on the x axis, but using a price scale, the distribution is positively skewed with a lower bound of zero.

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Abdulla Javeri

Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.

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