The log-normal distribution is the probability distribution of a random variable whose logarithm follows a normal distribution. Unfortunately, we are witnessing a practical application of it in the log-normal distribution of new cases of COVID-19 per day. From the video lectures of this course, we also know that in finance, the log-normal distribution is often used to model the price of a stock and forms the foundation of many asset pricing models. Which of the following is one of the reasons that the log-normal distribution is used to model stock prices rather than the normal distribution?

A.

The normal distribution overestimates the probability of tail risks.

B.

The normal distribution has positive skewness.

C.

The normal distribution is leptokurtic.

D.

The normal distribution describes multiplicative situations like compounding stock prices.

E.

The normal distribution allows for negative stock prices.