Course Name: Options Trading Strategies In Python: Basic, Section No: 3, Unit No: 2, Unit type: Quiz
Hey I could not understand why the ans is option 3: N(1,2) and why is it not option 4: N(1,5). as the return is 1% daily in both but the deviation is around 5% on both the sides.
Hi Mridul,
In a normal distribution, approximately 68% of the data comes under 1 standard deviation. And approximately 95% of the data comes under 2 standard deviation. The +/-5 standard deviation covers more than 99% of the data. By looking at the graph, the closest representation of the distribution will be N(1,2) as +/- 5 is not in the distribution. However, the options are a bit confusing. We will make the changes.
Hope that helps.