[R-sig-finance] price break down
davidr at rhotrading.com
davidr at rhotrading.com
Tue Mar 21 15:21:38 CET 2006
All bond prices are exact in binary arithmetic, so no round-off.
(I may have missed part of this conversation while on vacation.)
David L. Reiner
> -----Original Message-----
> From: r-sig-finance-bounces at stat.math.ethz.ch [mailto:r-sig-finance-
> bounces at stat.math.ethz.ch] On Behalf Of Spencer Graves
> Sent: Monday, March 20, 2006 8:12 PM
> To: Fred J.
> Cc: r-sig-finance at stat.math.ethz.ch
> Subject: Re: [R-sig-finance] price break down
>
> 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]]
> >
> >
> >
> >
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