Why Do We Assume a Lognormal Distribution in Option Pricing

question 10

Essay

Why do we assume a lognormal distribution in option pricing? Ask the class to explain the pluses and minuses to this assumption.Once the downfalls are established,probe students to find out if a better alternative exists.

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Definitions:

Kant

Refers to Immanuel Kant, an 18th-century German philosopher who made pivotal contributions to the development of modern philosophy, especially in the areas of epistemology and ethics.

Universalizability

The ability to be applied to everyone without exception. This is an essential feature of moral principles, according to Immanuel Kant and others.

Ethical Relativist

A belief that morality is not universal and what is considered morally right or wrong varies from culture to culture.

Female Circumcision

A cultural and religious practice involving the partial or total removal of the external female genitalia, often debated for its health implications and ethical concerns.