What is the significance of normal distribution

Almost all statistical tests discussed in this text assume normal distributions. Fortunately, these tests work very well even if the distribution is only approximately normally distributed. Some tests work well even with very wide deviations from normality. As n becomes large the normal distribution serves as a good approximation of many discrete such as the Binomial of the Poisson model whenever the exact discrete probability is laborious to obtain or impossible to calculate accurately.

In theoretical statistics many problems can be solved only under the assumptions of the normal population. In applied work as well, we often find that methods developed under the normal probability law yield satisfactory results, even when the assumption of a normal population is not fully met, despite the fact that the problem can have a formal solution only if such a premise is hypothesized.

The normal distribution has numerous mathematical properties which make it popular and comparatively easy to manipulate. The normal distribution is used extensively in statistical quality control in industry in setting up of controls limits. For more help in Importance of Normal Distribution click the button below to submit your homework assignment. Submit Assignment Now! Such assets have had price movements greater than three standard deviations beyond the mean more often than would be expected under the assumption of a normal distribution.

Even if an asset has went through a long period where it fits a normal distribution, there is no guarantee that the past performance truly informs the future prospects. Advanced Technical Analysis Concepts. Tools for Fundamental Analysis. Risk Management.

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What is Normal Distribution? Key Takeaways A normal distribution is the proper term for a probability bell curve. In a normal distribution the mean is zero and the standard deviation is 1. It has zero skew and a kurtosis of 3. Normal distributions are symmetrical, but not all symmetrical distributions are normal. In reality, most pricing distributions are not perfectly normal.

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