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Old 01-12-2018, 08:53 PM
Gilgamesh Gilgamesh is offline
Join Date: Jul 2014
College: University of Houston
Posts: 70
Default Continuously Compounded Expected Return?

How do we know when this phrase refers to the lognormal mean or the normal mean? For example, if "A" is associated with this phrase, it could mean that:

E[S(T)] = S(0)*e^(AT)


E[S(T)] = S(0)*e^(A+.5*Sigma^2)(T).
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Old 01-12-2018, 09:09 PM
Academic Actuary Academic Actuary is online now
Join Date: Sep 2009
Posts: 8,264

The first A is usually referred to as the expected return on the asset. The second A would be the expected value of the rate of return which is the mean of the normal.
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compound, continuous, expected, return, stock

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