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:

[hidden email] [mailto:r-sig-finance-

>

[hidden email]] On Behalf Of Spencer Graves

> Sent: Monday, March 20, 2006 8:12 PM

> To: Fred J.

> Cc:

[hidden email]
> 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

> >

> >

> >

> >

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