(Weighted) Sum of 'n' Correlated Lognormals: Probability Density Function – Numerical calculation
Corvinus University of Budapest, Department of Environmental Economics and Technology
January 15, 2010
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, C15working papers series
Date posted: February 11, 2011 ; Last revised: February 18, 2011
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