2. Algebra Flashcards
1
Q
If R is very small then ln(1+R) is…
A
very close to R
2
Q
If R is larger than simple returns and log returns then…
A
ln (1+R) can be different
3
Q
Matrices can only be multiplied if they are…
A
conformal, inner dimensions agree (c = r) –> (r x c)(c x r)
4
Q
How to multiply matrices together?
A
- Dot product
- Product of first row, first column = 1st number
- Product of first row , second column
- Product of second row, first column
- Product of second row, second column
5
Q
Matrix x its inverse =
A
i = identity matrix (1 on diagonal, 0 on diagonal)
6
Q
Arithmetic returns
A
P1/P0 - 1
7
Q
Log Returns
A
ln(P1/P0)
*continuously compounded returns –> compounding frequency does not matter
* time additive
* considered to be normally distributed
