We look at the definitions first.

A continuous random variable, X, has a *probability density function* (PDF), if and for all events A

The CDF and PDF are related by

It is good to know that we have

We X has a normal distribution, , and . And while

We also have the log-normal distribution, and . Here, and . The log-normal distribution is very important in financial applications, for starters, the Black Scholes Equation.

[…] we look at an important concept that is an extension from Bayes Theorem, which we discussed […]