The Skinny on Options: Abstract Applications

The Poisson Distribution

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Clearly, the Normal Distribution is the distribution that we feel offers the most relevance and applicability to the financial markets. We’ve already seen its benefits multiple times in multiple ways. But the truth is, it is not the only distribution that can be used to describe a data set. This was clear when we looked at the Binomial Distribution earlier in the year. So today we take a crack at better understanding the Poisson Distribution.

With its having the same general shape as a Normal Distribution (i.e. ‘Bell Curve’), why don’t we use the Poisson Distribution more regularly in our analysis?

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