Quants

asm01893
Posts: 8
Joined: Fri Feb 27, 2015 2:23 pm

Quants

If a Normal Distribution is a Mesokurtic Distribution with k=3, then what would be a Student's-T Distribution? 1)K=3 2)K<3 3)K>3 Please provide some explanations too in support of your answer

edupristine
Finance Junkie
Posts: 948
Joined: Wed Apr 09, 2014 6:28 am

Quants

Hi, answer to your query is option C i.e. K>3. Student's T distribution is a leptokurtic distribution. the normal distribution has more returns clustered in the center of the distribution and the t distribution has more in the tails. Hence, we can say that T distribution is leptokurtic. The t distribution approaches the normal distribution as the degrees of freedom increase.

asm01893
Posts: 8
Joined: Fri Feb 27, 2015 2:23 pm

Re: Quants

But a T distribution is less peaked and has fatter tails compared to a Standard Normal Distribution. And as per the explanation for Leptokurtic Distribution, it is more peaked and has fatter tails than a Normal Distribution. So how can we say for sure that it is a Leptokurtic Distribution and not a Platykurtic Distribution?

edupristine
Finance Junkie
Posts: 948
Joined: Wed Apr 09, 2014 6:28 am

Quants

Hi, T distribution has peaks that are thin and tall. Tails both on right and left are thick and heavy. Which are the features of leptokurtic distribution.
Whereas, platykurtic distribution is low peaked and have thin tails. Example of platykurtic distribution are uniform distribution.