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zebedeem
Topic Author
Posts: 14
Joined: May 20th, 2025, 7:03 am

Affine returns lead to a mixture distribution

May 20th, 2025, 7:11 am

Offset returns => Normal distribution => Brownian motion

Linear returns => Log-Normal distribution => Geometric Brownian motion

Affine returns => Log-Normal distribution + other => Geometric Brownian motion + other

Where other appears to be a logit-normal distribution stretched out. Over time you get change in the shape of the distribution which may mirror what Paul Wilmott described in his FAQ.

Pretty pics and link to a pre-print on Github here