Hi folks,
so it stands written in Schweser regarding the assumptions of the BSM:
“The underlying asset price follows a geometric Brownian motion process. The return on the underlying asset follows a lognormal distribution. In other words, the logarithmic continuously compounded return is normally distributed.”
On the other hand, the concept checks tell you that is is wrong that: "Continuously compounded returns are lognormally distributed."
Could you please tell me the difference between
- a value being lognormally distributed and
- the logarithmic value being normally distributed?
Thanks!