New answers tagged returns
3
votes
Accepted
Why is NPV a biased measure?
There is no statistical "bias". It is just that NPV and IRR can provide different rankings to projects. For example consider a project with a small initial investment and positive cash flows ...
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Why do we usually model returns and not prices?
Somewhat sloppy, you could say this.
Prices are totally unpredictable and follow a brownian motion. Therefore you can not predict prices. However, returns have structure so you can predict returns.
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2
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Returns of an interest rate swap
I think the best concept of return for the interest rate swap is (2-0)/m, where m is the outlay for initial margin. This is rarely calculated at an institution holding a large portfolio of swaps, ...
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Returns of an interest rate swap
Let us specify the floating-leg rate reset dates to be $T_\alpha, T_{\alpha+1}, \ldots, T_{\beta-1}$, payment dates $T_{\alpha+1}, \ldots, T_{\beta}$. Set the day count fraction to $\tau_i \equiv T_{i+...
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How to annualize Sharpe Ratio if monthly returns are serially correlated? Calculation of autocorrelations
The following simulations indicate that autocorrelation does not bias the Sharpe ratio:
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