1
$\begingroup$

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 $X + Y$)?

$\endgroup$
1
$\begingroup$

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

where $\rho$ is the correlation coefficient.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

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