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0 pointsasdf_snar5y ago0 comments

It is true that there is no closed form expressions for the sum of two independent log normal distributions. However, like I said, good approximations exist. Moreover, if you were to ask me to compute some expectation E[f(X)] where X is the sum of independent one-dimensional log-normals, it seems simplest to convolve the densities and simply compute the expectation by trapezoidal integration.

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diiq5y ago· 1 in thread

Fair enough! There's more than one way to skin a cat. This way was easier for me, and has additional benefits as described.

asdf_snarOP5y ago

I think I misled myself into thinking your selling point was the technology (Monte Carlo), whereas as you say there is little about that on the website. And your comments below are right: building the tool around MC affords you a lot of flexibility without having to be increasingly clever.

The only thing I would worry about then are events which have low probability but potentially very high "weight" in whatever measure of risk you are using. Sometimes the weight can be so large that your MC estimates seem to converging, and then the addition of a single trajectory completely blows up your variance. These are related to the "black swan" events people sometimes talk about. I don't think this is a problem in your model.

Thanks again for ansnwering.

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