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A Comparison of Macaulay Approximations

Author

Listed:
  • Stefanos C. Orfanos

    (Department of Risk Management & Insurance, J. Mack Robinson College of Business, Georgia State University, Atlanta, GA 30302, USA)

Abstract

We discuss several known formulas that use the Macaulay duration and convexity of commonly used cash flow streams to approximate their net present value, and compare them with a new approximation formula that involves hyperbolic functions. Our objective is to assess the reliability of each approximation formula under different scenarios. The results in this note should be of interest to actuarial candidates and educators as well as analysts working in all areas of actuarial practice.

Suggested Citation

  • Stefanos C. Orfanos, 2022. "A Comparison of Macaulay Approximations," Risks, MDPI, vol. 10(8), pages 1-8, July.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:8:p:153-:d:874980
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    References listed on IDEAS

    as
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    2. Johansson, Bo, 2012. "A note on approximating bond returns allowing for both yield change and time passage," MPRA Paper 92607, University Library of Munich, Germany.
    3. Fisher, Lawrence & Weil, Roman L, 1971. "Coping with the Risk of Interest-Rate Fluctuations: Returns to Bondholders from Naive and Optimal Strategies," The Journal of Business, University of Chicago Press, vol. 44(4), pages 408-431, October.
    4. Souad Lajili Jarjir & Yves Rakotondratsimba, 2012. "Enhancement of the Bond Duration-Convexity Approximation," Post-Print hal-01133573, HAL.
    Full references (including those not matched with items on IDEAS)

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