DEFINITION of 'Probability Density Function - PDF'

A statistical measure that defines a probability distribution for a random variable and is often denoted as f(x). When the PDF function is graphically portrayed, the area under the graph will indicate the interval under which the variable with fall.

BREAKING DOWN 'Probability Density Function - PDF'

The probability density function is often used in the creation of financial and economic modeling for forecasting purposes. More specifically, the PDFs of futures exchange rates and equity prices can be employed in models in order to get a more complete picture regarding future market sentiment.

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