April 20, 2007

B497

78

Pricing Derivative Securities (2nd Ed.)

9in x 6in

ch02

Pricing Derivative Securities (2nd Ed.)

Table 2.3.

Common distributions and their properties.

Name
Abbrev.

P.d.f./
P.m.f.

Support
X

Parameter
Space

Moments

k , k , (k)

Bernoulli

x
1x

{0, 1}

(0, 1)

k :

B(1, )
Binomial

`n nx x

B(n, )

Poisson

x e /x!

1 + ei

{0, 1, . . . , n} (0, 1)

n
1 + ei

(k) :

n!k
(nk)!

>0

(k) :

exp ei

P ()
Neg. Bin.

(+x) x

x!()

N B(, )

Uniform

( )1

(, )

(0, 1)

(k) :

k
(+k)
() k

k :

<

k+1 k+1
(k+1)()

U(, )
x1 ex/
()

Gamma

(, )
Exponential

1 ex/

Characteristic
Function, ()

i
1e

ei

sin

(+)
2

(1 i)

>0

k :

>0

k (+k)
()

>0

k :

(1 i)1

(1, )

k!
2 /22
e(x)

Normal

N (, 2 )

>0

Multinormal

N (, )
/
Lognormal

2 /22
e(ln x)

x 2

(0, )

LN (, 2 )
Cauchy


1

/ >> 0

2 =
/

k :

>0
1

2
1+ x

2 2 /2

0, k odd
k k!
,
2k/2 [k/2]!


/ 1 (x)/2
e(x)
q
(2)k |
/|

ei

k :

else

ei

 
/ /2

no closed form

k+k2 2 /2

ei||

>0

C(, )

Two useful inequalities for bounding probabilities of large deviations are

2
P(Z > c) = 1 (c)
(2)1/2 zez /2 dz = (c) (2.52)
c

P(|Z| > c) = 2P(Z > c) < ec

for c 1.

/2

(2.53)

FA