A Comparison of Macaulay Approximations

Stefanos C. Orfanos
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Stefanos C. Orfanos: Department of Risk Management & Insurance, J. Mack Robinson College of Business, Georgia State University, Atlanta, GA 30302, USA

Risks, 2022, vol. 10, issue 8, 1-8

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.

Keywords: Macaulay duration; Macaulay convexity; net present value of cash flows (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
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