[R-sig-finance] price break down
Spencer Graves
spencer.graves at pdf.com
Tue Mar 21 03:11:41 CET 2006
Nearly all computations in R are to double precision, and I would not
worry about round-off error in this case.
Far more important is an issue you have not mentioned: What do you
think about doing essentially all your computations on log price and log
returns? I recommend this for two reasons: First, log prices and log
returns tend more nearly normally distributed than the raw data and
unlogged returns. Second, the logarithms tend to be more tractible
mathematically. For example, extrapolation from a model fit to prices
in dollars could give you negative prices, i.e., you would have to pay
someone to take your bonds. By contrast, negative log prices just means
that the price is less than one dollar (or one Swiss Franc or whatever
currency you are using). If you honestly can be required to pay someone
to take your bonds, then you don't want logarithms; otherwise, I think
you do.
hope this helps.
spencer graves
Fred J. wrote:
> Hi
>
> Doing calculations on time series data “US bonds” where the
price is presented say 11328 to mean 113 28/32, it seams to me
that converting the rational would be 0.875 and the round-off
error would be expected to cause problems in doing calculations
on such numbers, how one could avoid or minimize such a problem?
> or handle bond-kind-of-price in general? Thanks
>
>
>
>
> ---------------------------------
>
>
> [[alternative HTML version deleted]]
>
>
>
> ------------------------------------------------------------------------
>
> _______________________________________________
> R-sig-finance at stat.math.ethz.ch mailing list
> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
More information about the R-sig-finance
mailing list