Last lecture• Gamma distribution

Gamma density

Last lecture• Bernoulli and binomial distribution• Application of binomial distriubiton

What do you think?Can we use a binomial distribution to model the financial market.

i.e one stock price going up or down for the next T days.

a) Yesb) No

Yes, with some assumptions about the market. actually, this is the a building block for discrete time Black-Scholes model

If you are interested, look at http://www.math.uh.edu/~rohop/spring_13/Chapter2.pdf