Affiliation

Hedge

Main category

Social Sciences (Social Sciences)

Abstract

This paper presents a model for compute average volatility and correlation. Since an arithmetic average of log-normally distributed variables is not log-normal, We approximate the arithmetic average by matching its first and second moments with those of a log-normal variable. We generate the volatility of a log-normal variable that approximates an arithmetic average of asset prices. We also calculate the correlation between two log-normal variables chosen to match that between two arithmetic averages of asset prices.

Link this presentation

https://science-media.org/presentation/705