Probability Density Function - PDF

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.

RELATED TERMS
  1. Stochastic Modeling

    A method of financial modeling in which one or more variables ...
  2. Sensitivity Analysis

    Sensitivity analysis is a technique used to determine how different ...
  3. Variability

    The extent to which data points in a statistical distribution ...
  4. Endogenous Variable

    A classification of a variable generated by a statistical model ...
  5. Random Factor Analysis

    A statistical analysis performed to determine the origin of random ...
  6. Heteroskedastic

    A measure in statistics that refers to the variance of errors ...
Related Articles
  1. Trading Systems & Software

    Trading Systems Coding: The Coding Process

    By Justin Kuepper Contact Justin By now you should have a design in hand as well as a basic idea of what the code looks like. In this section, we'll take a more in-depth look at how a program ...
  2. Investing News

    Stock and Flow Variables Explained: A Closer Look at Apple

    The difference between stock and flow variables is an essential concept in finance and economics. We illustrate with financial statements from Apple Inc.
  3. Trading Systems & Software

    Advanced Guide To The Bloomberg Terminal: Equity Functions: Monitoring Markets, Trading And Options

    Bloomberg offers numerous functions for monitoring the equity markets (as well as all other markets.) Which function you prefer is largely a matter of personal preference, and will depend on ...
  4. Economics

    How Do Companies Forecast Oil Prices?

    Read about the different forecasting methods that businesses use to predict future crude oil prices, and why it's so difficult to guess correctly.
  5. Investing Basics

    Regression Basics For Business Analysis

    This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how.
  6. Fundamental Analysis

    Guide To Excel For Finance: Valuation Methods

    DCF There is not a specific function to run a full discounted cash flow model in Excel, but there are a number of tools to make the exercise much more straightforward. As touched upon in the ...
  7. Retirement

    How a Variable Annuity Works After Retirement

    These investments can provide extra income after you retire. Here’s a guide to when and how you will receive the payout.
  8. Entrepreneurship

    Calculating (Small) Company Credit Risk

    Determining creditworthiness of smaller and medium-sized corporations isn't as easy as for larger companies, but these tips can help.
  9. Fundamental Analysis

    Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.
  10. Economics

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.
RELATED FAQS
  1. Can you calculate more than two inputs with the production possibility frontier?

    Understand how production possibility frontiers are used in business and learn more about how additional products may be ... Read Answer >>
  2. What is the utility function and how is it calculated?

    Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ... Read Answer >>
  3. For what reasons are electronics stocks commonly purchased by a value investor?

    Learn about the breakdown of subjects on the Series 6 while reviewing important aspects of the exam, including its content ... Read Answer >>
  4. If I have only a limited amount of time to study for the Series 6, what should I ...

    Learn what to focus on when studying for the Series 6 while reviewing important aspects of the exam, including its content ... Read Answer >>
  5. How are variable annuities regulated?

    Discover the various rules that the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority ... Read Answer >>
  6. Do production costs include all fixed and variable costs?

    Learn more about fixed and variable costs and how they affect production costs. Understanding how to graph these costs can ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center