I'm trying to generate a random lognormal distribution of stock returns
where the mean return is 6.5% and the standard deviation is 20%.
Previously I've done this with a normal distribution, using
NORMINV(RAND(),mean,stddev). However, since stock returns tend to be
lognormally distributed I'd like to do a lognormal distribution. This
has turned out to be tricky. When I set up
LOGINV(RAND(),ln(mean),ln(stddev)) I get the #NUM error. I believe this
is because the log of a standard deviation expressed in percent (say,
0.20) can be negative. I tried using a larger number (say, multiplying
the mean/stddev by 100 to prevent negative logs) but I'm not sure
that's right.
Does anyone know an easy way to do this? Thanks!
iandjmsmith@aol.com - 29 Sep 2006 17:41 GMT
> I'm trying to generate a random lognormal distribution of stock returns
> where the mean return is 6.5% and the standard deviation is 20%.
[quoted text clipped - 10 lines]
>
> Does anyone know an easy way to do this? Thanks!
According to the help information, you are supposed to use
LOGINV(RAND(),mean,stddev).
Ian Smith
agbiggs@hotmail.com - 29 Sep 2006 18:46 GMT
THanks, Ian. I've copied and pasted from the help section. I
interpreted it to mean that if my mean value is 6.5% and stddev is 20%,
that I should enter in ln(6.5%) and ln(20%) (or use them as 6.5 and 20
to avoid negative values). But this seems to produce odd results.
LOGINV(probability,mean,standard_dev)
Probability is a probability associated with the lognormal
distribution.
Mean is the mean of ln(x).
Standard_dev is the standard deviation of ln(x).
agbiggs@hotmail.com - 29 Sep 2006 19:51 GMT
For what it's worth, I've figured out my problem. The lognormal
distribution is of the gross return (i.e., 1 + the return). If you work
from this then things come out ok.