Bond-Pricing; Black Scholes

Description Usage Arguments Details Value Author(s)

This function computes the internal rate of return at which the net present value equals zero. It requires as input a function that computes the net present value of a series of cash flows for a given interest rate as well as the derivative of the NPV with respect to the interest rate (10,000 times this derivative is the PVBP or DV01). In this package, irr.solve is primarily intended to be called by the irr and bond.yield functions. It is made available for those who want to find IRR of more complex instruments.

irr.solve(
  f,
  interval = NULL,
  r.guess = NULL,
  toler = 1e-06,
  convergence = 1e-08,
  max.iter = 100,
  method = c("default", "newton", "bisection")
)

`f`	The function whose zero is to be found. An R function object that takes one numeric argument and returns a list of two components (value and gradient). In the IRR applications, these two components will be the NPV and its derivative
`interval`	The interval c(lower, upper) within which to search for the IRR
`r.guess`	The starting value (guess) from which the solver starts searching for the IRR
`toler`	The argument `toler` to `newton.raphson.root`. The IRR is regarded as correct if abs(NPV) is less than `toler`. Otherwise the `irr.solve` returns `NA`
`convergence`	The argument `convergence` to `newton.raphson.root`.
`max.iter`	The maximum number of iterations of the Newton-Raphson procedure
`method`	The root finding method to be used. The `default` is to try Newton-Raphson method (`newton.raphson.root`) and if that fails to try bisection (`bisection.root`). The other two choices (`newton` and `bisection` force only one of the methods to be tried.

The function irr.solve is basically an interface to the general root finder newton.raphson.root. However, if newton.raphson.root fails, irr.solve makes an attempt to find the root using uniroot from the R stats package. Uniroot uses bisection and it requires the root to be bracketed (the function must be of opposite sign at the two end points - lower and upper).

The function irr.solve returns NA if the IRR/YTM could not be found. Otherwise it returns the IRR/YTM. When NA is returned, a warning message is printed

Prof. Jayanth R. Varma jrvarma@iima.ac.in

jrvFinance documentation built on Nov. 5, 2021, 5:07 p.m.