How can we use normal distribution for finding the probability of a stock price offer where current price offer depends upon the last price offer. The price offer on some day can go 10% above (at the maximum) or 10% below (at the minimum) from the last price offer. If NOT, which is the suitable distribution for the stated problem?

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    $\begingroup$ Hi Javeria Iqbal, I'm not sure what you mean. As you surely know the normal distribution has support on the whole real line. You can truncate the distribution but then it's not the normal distribution any more. Can you clarify. $\endgroup$ – Bob Jansen Dec 27 '14 at 21:55
  • $\begingroup$ Hi Bob Jansen, Yes i know that normal distribution has support on the complete real line. But, we can compute the expected value of a random variable in uniform distribution over the defined interval [a,b]. Could you please suggest me? $\endgroup$ – Javeria Iqbal Dec 27 '14 at 23:10
  • $\begingroup$ Sorry, I can't make much sense of it. Maybe you can try to restate your problem. $\endgroup$ – Bob Jansen Dec 28 '14 at 10:34

Stock prices have been modeled using the Lognormal distribution, not the Normal distribution. See this paper http://math.ucsd.edu/~msharpe/stockgrowth.pdf for more detailed information.

This does not mean that the current price offer depends on the last price offer.


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