Discrete random variable

Definition:

A random variable that can take only a certain specified set of individual possible values-for example, the positive integers 1, 2, 3, . . . For example, stock prices are discrete random variables, because they can only take on certain values, such as $10.00, $10.01 and $10.02 and not $10.005, since stocks have a minimum tick size of $0.01. By way of contrast, stock returns are continuous not discrete random variables, since a stock's return could be any number.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Perfect hedge

A situation in which the profit and loss from the underlying asset and the hedge position are equal.

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