Approximating the Sum of Correlated Lognormals: An Implementation

Autor:	Rook, Christopher J., Kerman, Mitchell
Rok vydání:	2015
Předmět:	Quantitative Finance - General Finance Computer Science - Mathematical Software Statistics - Applications D.2.4 G.3 J.2
Druh dokumentu:	Working Paper
Popis:	Lognormal random variables appear naturally in many engineering disciplines, including wireless communications, reliability theory, and finance. So, too, does the sum of (correlated) lognormal random variables. Unfortunately, no closed form probability distribution exists for such a sum, and it requires approximation. Some approximation methods date back over 80 years and most take one of two approaches, either: 1) an approximate probability distribution is derived mathematically, or 2) the sum is approximated by a single lognormal random variable. In this research, we take the latter approach and review a fairly recent approximation procedure proposed by Mehta, Wu, Molisch, and Zhang (2007), then implement it using C++. The result is applied to a discrete time model commonly encountered within the field of financial economics. Comment: Fully documented source code is included
Databáze:	arXiv
Externí odkaz:	http://arxiv.org/abs/1508.07582 Zobrazit plný text záznamu View this record from Arxiv