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 $X + Y$)?
What is the characteristic formula for the addition of two lognormal distributions?
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$\begingroup$
statistics
probability-distributions
correlation
1 Answers
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$E(X+Y) = E(X) + E(Y)$ and $\sigma_{X+Y}^2 = \sigma_X^2 + \sigma_Y^2 + 2 \rho \sigma_X \sigma_Y$
where $\rho$ is the correlation coefficient.