N(-d2) ?

Discussion in 'P1.T4. Valuation & Risk Models (30%)' started by crablegs, Oct 11, 2011.

  1. crablegs

    crablegs Member

    Rho (put) formula has the following : N(-d2), however cummulative Z-table is only for positive #'s?

    Thank you,
  2. Hi Glen

    But (and GARP does likes to test this) the normal is symmetrical such that N(-d2) = 1-N(d2).Or, N(-z) = 1 - N(z).

    For example, say you want N(-1.645) which is area under curve to the left of -1.645 deviates.
    That's the left tail, which by symmetry, is the same area as its "matching" right tail, to the right of + 1.645.
    We know the area to the left of + 1.645? This is the definition of CDF. It is N(1.645), such that to the right of +1.645 must be 1-N(1.645); all probabilities have area = 1.0.
    As left tail area must match, N(-1.645) = 1 - N(1.645) = 1 - 95%.

    Thanks, David
  3. crablegs

    crablegs Member

    Very helpful. Thank you very much.

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