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August 10th, 2010, 01:10 PM   #1
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Calculating the expected value

Assume Lt is iid N(mean = -0.0042, variance = 0.0133) and Rt = exp(Lt) - 1.

I calculated the E[min(Rt, 0.04)] to be 0.04*(1 - normcdf(0.3765)) + exp(-0.0042)*exp(0.0133/2)*normcdf(0.3765) - normcdf(0.3765) = 0.0157

However, matlab results indicate that it should instead, be around -0.0282.

Do you know what I'm doing wrong here?

Thanks a lot for the help
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