(Weighted) Sum of 'n' Correlated Lognormals: Probability Density Function – Numerical calculation

Nagy, Tamas

doi:10.2139/ssrn.1757781

Abstract

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(Weighted) Sum of 'n' Correlated Lognormals: Probability Density Function – Numerical calculation

Tamas Nagy

Corvinus University of Budapest, Department of Environmental Economics and Technology

January 15, 2010

Abstract:
Probability density function (pdf) for (weighted) sum of n correlated lognormal variables is deducted. The method uses joint pdf of multivariate correlated lognormal variables and an extended method of convolution. The formula contains (n-1)-fold integral, which can be evaluated by numerical integration or an alternative direct discrete computing method. As an example a 4 dimensional weighted case is provided, the deducted theoretical pdf is checked by Monte Carlo simulation.

Number of Pages in PDF File: 7

Keywords: Sum of correlated lognormals, Extended convolution, Probability density function

JEL Classification: C63, C15

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Date posted: February 11, 2011 ; Last revised: February 18, 2011

Suggested Citation

Nagy, Tamas, (Weighted) Sum of 'n' Correlated Lognormals: Probability Density Function – Numerical calculation (January 15, 2010). Available at SSRN: http://ssrn.com/abstract=1757781 or http://dx.doi.org/10.2139/ssrn.1757781

Contact Information

Tamas Nagy (Contact Author)

Corvinus University of Budapest, Department of Environmental Economics and Technology ( email )

Hungary
+36704296661 (Phone)