Take the 2-minute tour ×
Mathematics Stack Exchange is a question and answer site for people studying math at any level and professionals in related fields. It's 100% free, no registration required.

If I have two lognormal processes (X and Y) with mean and volatiilty for each and also correlation between the two, what is the characteristic formula of X + Y (i.e. what is the new mean and new volatility of X + Y)?

share|improve this question

1 Answer 1

$$E(X+Y) = E(X) + E(Y)$$ and $$\sigma_{X+Y}^2 = \sigma_X^2 + \sigma_Y^2 + 2 \rho \sigma_X \sigma_Y$$

where $\rho$ is the correlation coefficient.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.