Tag Archives: log return
An easy mistake with returns
When aggregating over both time and assets, the order of aggregation matters. Task We have the weights for a portfolio and we want to use those and a matrix of returns over time to compute the (long-term) portfolio return. “A tale of two returns” tells us that aggregation over time is easiest to do in … Continue reading
Posted in Quant finance, R language
Tagged log return, log return vs simple return, simple return
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Returns with negative net asset values
How are returns calculated when net asset value goes negative? Previously In “A tale of two returns” we highlighted the similarities and differences of log returns versus simple returns. Positive valuation We create — in R — an example of net asset value at four times: > nav1 <- c(1000, 900, 950, 1010) > nav1 … Continue reading
The distribution of financial returns made simple
Why returns have a stable distribution As “A tale of two returns” points out, the log return of a long period of time is the sum of the log returns of the shorter periods within the long period. The log return over a year is the sum of the daily log returns in the year. … Continue reading
A tale of two returns
It was the best of times, it was the worst of times. As you may have guessed, this is a mashup of a novel by Charles Dickens and an explanation of financial returns. The key plot element of A Tale of Two Cities is that there are two men, Charles Darnay and Sydney Carton, who … Continue reading
Posted in Quant finance, R language
Tagged aggregate returns, arithmetic return, arithmetic return vs geometric return, continuously compounded returns, geometric return, geometric return vs arithmetic return, gross return, log return, log return vs simple return, net return, simple return, simple return vs log return, total return
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