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Old 01-12-2018, 07:53 PM
Gilgamesh Gilgamesh is offline
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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)

or

E[S(T)] = S(0)*e^(A+.5*Sigma^2)(T).
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Old 01-12-2018, 08:09 PM
Academic Actuary Academic Actuary is offline
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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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