Multinomial Distribution

AAA

DEFINITION of 'Multinomial Distribution '

A distribution that shows the likelihood of the possible results of a experiment with repeated trials in which each trial can result in a specified number of outcomes that is greater than two. A multinomial distribution could show the results of tossing two dice, because each die can land on one of six possible values. By contrast, the results of a coin toss would be shown using a binomial distribution because there are only two possible results of each toss, heads or tails.

INVESTOPEDIA EXPLAINS 'Multinomial Distribution '

Two additional key characteristics of a multinomial distribution are that the trials it illustrates must be independent (e.g., in the dice experiment, rolling a five does not have any impact on the number that will be rolled next) and the probability of each possible result must be constant (e.g., on each roll, there is a one in six chance of any number on the die coming up).

RELATED TERMS
  1. Simple Random Sample

    A subset of a statistical population in which each member of ...
  2. Probability Distribution

    A statistical function that describes all the possible values ...
  3. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  4. Conditional Probability

    Probability of an event or outcome based on the occurrence of ...
  5. Binomial Tree

    A graphical representation of possible intrinsic values that ...
  6. Binomial Option Pricing Model

    An options valuation method developed by Cox, et al, in 1979. ...
Related Articles
  1. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  2. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  3. Investing

    How to Use Stratified Random Sampling

    Stratified random sampling is a technique best used with a sample population easily broken into distinct subgroups. Samples are then taken from each subgroup based on the ratio of the subgroup’s ...
  4. Fundamental Analysis

    Lognormal and Normal Distribution

    When and why do you use lognormal distribution or normal distribution for analyzing securities? Lognormal for stocks, normal for portfolio returns.
  5. Investing Basics

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.
  6. Technical Indicators

    The Normal Distribution Table, Explained

    The normal distribution formula is based on two simple parameters - mean and standard deviation
  7. Economics

    Can Investors Trust Official Statistics?

    The official statistics in some countries need to be taken with a grain of salt. Find out why you should be skeptical.
  8. Investing Basics

    R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  9. Active Trading Fundamentals

    Hypothesis Testing in Finance: Concept & Examples

    When you're indecisive about an investment, the best way to keep a cool head might be test various hypotheses using the most relevant statistics.
  10. Investing Basics

    Industry Handbook

    In this feature, we take an in-depth look at the various techniques that determine the value and investment quality of companies from an industry perspective.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center