[R] Secant Method Convergence (Method to replicate Excel XIRR/IRR)
Ravi Varadhan
rvaradhan at jhmi.edu
Wed Aug 25 23:24:06 CEST 2010
Another approach is to use `uniroot' to find the zero of the NPV function:
npv <- function (cashFlow, irr) {
n <- length(cashFlow)
sum(cashFlow / (1 + irr)^{0: (n-1)})
}
uniroot(f=npv, interval=c(0,1), cashFlow=cashFlow)
However, there may be situations where there are no real zeros or there are
multiple zeros of the NPV function.
Ravi.
-----Original Message-----
From: r-help-bounces at r-project.org [mailto:r-help-bounces at r-project.org] On
Behalf Of Adrian Ng
Sent: Wednesday, August 25, 2010 8:39 AM
To: r-help at r-project.org
Subject: [R] Secant Method Convergence (Method to replicate Excel XIRR/IRR)
Hi,
I am new to R, and as a first exercise, I decided to try to implement an
XIRR function using the secant method. I did a quick search and saw another
posting that used the Bisection method but wanted to see if it was possible
using the secant method.
I would input a Cash Flow and Date vector as well as an initial guess. I
hardcoded today's initial date so I could do checks in Excel. This code
seems to only converge when my initial guess is very close to the correct
IRR.
Maybe I have some basic errors in my coding/logic? Any help would be greatly
appreciated.
The Wikipedia article to secant method and IRR:
http://en.wikipedia.org/wiki/Internal_rate_of_return#Numerical_solution
Thanks!
ANXIRR <- function (cashFlow, cfDate, guess){
cfDate<-as.Date(cfDate,format="%m/%d/%Y")
irrprev <- c(0); irr<- guess
pvPrev<- sum(cashFlow)
pv<-
sum(cashFlow/((1+irr)^(as.numeric(difftime(cfDate,"2010-08-24",units="days")
)/360)))
print(pv)
print("Hi")
while (abs(pv) >= 0.001) {
t<-irrprev; irrprev<- irr;
irr<-irr-((irr-t)*pv/(pv-pvPrev));
pvPrev<-pv;
pv<-sum(cashFlow/((1+irr)^(as.numeric(difftime(cfDate,"2010-08-24",units="da
ys"))/365)))
print(irr);print(pv)
}
}
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