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Python for Finance

You're reading from   Python for Finance If your interest is finance and trading, then using Python to build a financial calculator makes absolute sense. As does this book which is a hands-on guide covering everything from option theory to time series.

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Product type Paperback
Published in Apr 2014
Publisher
ISBN-13 9781783284375
Length 408 pages
Edition 1st Edition
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Author (1):
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Yuxing Yan Yuxing Yan
Author Profile Icon Yuxing Yan
Yuxing Yan
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Table of Contents (14) Chapters Close

Preface 1. Introduction and Installation of Python FREE CHAPTER 2. Using Python as an Ordinary Calculator 3. Using Python as a Financial Calculator 4. 13 Lines of Python to Price a Call Option 5. Introduction to Modules 6. Introduction to NumPy and SciPy 7. Visual Finance via Matplotlib 8. Statistical Analysis of Time Series 9. The Black-Scholes-Merton Option Model 10. Python Loops and Implied Volatility 11. Monte Carlo Simulation and Options 12. Volatility Measures and GARCH Index

Geometric versus arithmetic mean

In the next section, we discuss long-term return forecasting. Since we apply the weighted arithmetic and geometric means, we need to familiarize ourselves with the geometric mean first. For n returns (Geometric versus arithmetic mean,Geometric versus arithmetic mean, Geometric versus arithmetic mean) their arithmetic and geometric means are defined as follows:

Geometric versus arithmetic mean
Geometric versus arithmetic mean

In this formula, Ri is the stock's ith return. For an arithmetic mean, we could use the mean() function. Most of the time, the arithmetic mean is used in our estimations because of its simplicity. Since geometric means consider the time of values, it is considered to be more accurate for returns' estimation based on historical data. One important feature is that the geometric mean is smaller than its corresponding arithmetic mean unless all input values, such as all returns, are all the same. Because of this feature, many argue that using arithmetic means to predict future returns would lead to an overestimation. In contrast, geometric means would lead to an underestimation. Since the...

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