Questions tagged [compounding]
The compounding tag has no usage guidance.
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Modeling compounded RFRs with Vasicek
I’m wondering if simple interest rates models, like Vasicek, could be successfully used for modeling compounded setting-in-arrears rates (compounded SOFR for example)?
As far as I see I can do that ...
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Periodic investments with compound interest: where's the mistake?
Consider two investment strategies:
Every year, I have a quantity $I_a$ to invest. There is a financial object that gives an anual return of $r$, that is, after a year it transforms $I_a \mapsto rI_a$....
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compounding in short positions
Why does compounding doesn't work in short positions?
Let's say I have following mini time series
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Returns are -20%, 33% and 37.5%. So compounding return equals to 46.67% = 0.8 * 1.33 * 1.375....
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Sharpe ratios (and other risk-adjusted metrics) on Terminal wealth (long-horizon payoffs)
I'm exploring financial simulations with bootstrapped returns (TxNBoot) to calculate long-horizon returns. Terminal wealth (e.g compounded returns at T) is a vector of payoffs (NBootx1), typically ...
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What is the proper way to calculate cumulative return when only a portion of the portfolio is invested?
I have a hypothetical investment strategy that returns $x$ amount after $n$ days for a $1/n$ portion of the portfolio. I want total cumulative portfolio return. Is this right?
Basically, I calculate ...
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Compounding vs Annualizing Returns in a Portfolio Optimization Context
This might be a rather basic question that might be closed... but I can't for the life of me understand why in many Google search results the annualization of daily returns is done like this:
r_yearly ...
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Applications of a certain type of stochastic processes in quantitative finance [duplicate]
A compound Poisson random vector $Y$ is well defined in this site in wikipidia.
Nothing prevents me from compound strictly stationary stochastic processes instead of compound random vectors. The ...
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Monthly and annual arithmetic mean in valuations? [closed]
I know this is back to basics but I am perplexed by it!!!
Assume that the future value (FV) of an investment at the end of year 1 is 112, the annual arithmetic expected return is 12%, hence the ...
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Day Count Convention & Compounding Frequency Assumption in Interest Rate Swaps and Discount Factors
This question concerns old LIBOR Swaps where their fixed legs are based on 30/360, and floating legs on Act/360.
Q1. Let's assume the simple self-discounting case where spot rates are obtained ...
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How should we interpret r_c in continuously compounded interest? [closed]
I'm just curious there is any useful "meaning" or interpretation we can assign directly to $r_c$. Of course one can directly calculate the non-continuously compounded interest from $r_c$, ...
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Quantlib Yield curve and rate compounding [duplicate]
I need help in understanding Quantlib's interpretation of yield curve and rates. The rate output retrieved from yield curve differs from expectation for non continuous cases.
Illustration:
Let's start ...
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equivalentRate not matching for compounding cashflows
I am calculating equivalentrate between two days in quantlib python using following functions but the output is not matching with the manual calculation.
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compounding component contributions
Say I have a portfolio which contains two components, A & B.
Below are the daily contributions to performance (0.02 equals 2%), where the overall portfolio return is equal to the sum of component ...
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How to calculate the number of stocks I can buy with X dollars, if we know the exact growth rate of the stock price per dollar?
Let's say we have a stock whose price goes up at a rate (from the doubling time formula):
$ r = e^{(\text{volume}/1000 * \ln(1.2))} - 1 $
(The 1 is subtracted from e^pwr, not from pwr)
Meaning that it ...
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Intuition behind reasoning around interests-in-advance
I quote Life Insurance Mathematics (Gerber, 1997).
Let $i$ be an annual effective interest rate and $d$ an annual effective discount rate.
In case of interests-in-advance, a person investing an ...
