Dear Sir,
Thank you for valuable guidance. Though I have been using R occassionally, it
was limited to some basics and that way I am new to R. As suggested by you, I
have gone through the said chapter of Introduction to R manual, though I have
some urgent comittments to meet.
I have tried writing function as given below.
f = function(price, tenure, no_comp, coupon_rate, face_value)
{
coupon_payment = face_value * coupon_rate / no_comp
cash_flow = c(rep(c(coupon_payment), (no_comp * tenure - 1)), face_value +
coupon_payment)
E = NULL
for (i in 1 : (tenure * no_comp - 1))
{
E[i] = cash_flow[i]/(1+ytm)^i
}
F = NULL
{
F = sum(E) + ((face_value + coupon_payment)/(1+ytm)^(no_comp * tenure)) -
price
}
return(data.frame(S = uniroot.all(F, interval=c(0,25))))
}
output = f(1010, 3, 1, 0.10, 1000)
## End of code
However, when I try to execute the same, I get following error.
Error: object 'ytm' not found
My objective is to find ytm itself and I am not able to figure out where I am
going wrong and how to overcome the same.
Regards
Madhavi
--- On Tue, 2/2/10, Dennis Murphy <djmu...@gmail.com> wrote:
From: Dennis Murphy <djmu...@gmail.com>
Subject: Re: [R] Yield to Maturity using R
To: "Madhavi Bhave" <madhavi_bh...@yahoo.com>
Date: Tuesday, 2 February, 2010, 3:49 AM
Hi:
On Tue, Feb 2, 2010 at 3:01 AM, Madhavi Bhave <madhavi_bh...@yahoo.com> wrote:
Dear R helpers,
Yesterday I had raised following query which was addressed by Mr Ellison. The
query and the wonderful solution as provided by Mr. Ellison are as given below.
## PROBLEM
I am calculating the 'Yield to Maturity' for the Bond with following
characteristics.
Its a $1000 face value, 3 year bond with 10% annual coupon and is priced at
101. The yield to maturity can be calculated after solving the equation -
1010 = [100 / (1+ytm)] + [100 / (1+ytm)^2] + [ 1100 / (1 + ytm)^3]
This can be solved by trial and error method s.t. ytm = 9.601%. I wanted to
find out how to solve this equation in R.
## SOLUTION
Mr. Elisson had given me following wonderful solution
f.ytm<-function(ytm) 100 / (1+ytm) +100 / ((1+ytm)^2) + 1100 / ((1 +
ytm)^3) -1010
uniroot(f.ytm, interval=c(0,25))
#$root has the answer
And I got the answer as 9.601.
## _____________________________________________________________
I was just trying to generalize this solution to any equation and accordingly
written a code as given below.
The following input I will be reading using csv file and thus my equation will
change if tenure or no_comp etc. changes. So taking into account the variable
nature of the input, I am trying to write a generalized code.
## Input
price = 101 # Price of bond
tenure = 3
no_comp = 1 # no of times coupon paid in a year.
coupon_rate = 0.10 # i.e. 10%
face_value = 100
# Computations
coupon_payment = face_value * coupon_rate
cash_flow = c(rep(c(coupon_payemnt), (no_comp * tenure - 1)), face_value +
coupon_payment)
cash_flow
## I am trying to customize the code as given by Mr Ellison.
f.ytm = function(ytm)
{
for (i in 1 : (tenure * no_comp - 1))
E = NULL
F = NULL
{
E[i] = cash_flow[i]/(1+ytm)^i
F = (sum(E) + (face_value + coupon_payment)/((1+ytm)^(tenure * no_comp))) -
price
}
}
For this to work, tenure, no_comp, cash_flow, face_value and coupon_payment
have to be
visible to the function - i.e., they either have to be in the function's
calling environment
or in the global environment. These are called 'free variables' under the
lexical
scoping rules of R. (Welcome to function writing :)
You might want to look a little more closely at uniroot(), especially the
conventions
it requires for the *functions* it can evaluate. You want the body of what you
send
to uniroot() for evaluation to be a function of a single variable. Your
previously supplied
solution meets that requirement. This one doesn't (yet).
Moreover, it appears that E[i] is never used and nothing is returned from
f.ytm. I'd
suggest an excursion into R function writing fundamentals. Start with Ch. 10 of
the Introduction to R manual.
HTH,
Dennis
solution = uniroot(f.ytm, interval=c(0,25))
ytm = solution$root
However, when I execute this code I get following error.
> solution = uniroot(f.ytm, interval=c(0,25))
Error in uniroot(f.ytm, interval = c(0, 25)) : f.lower = f(lower) is NA
Please guide. ytm should be 0.09601 (i.e. 9.601%)
with regards
Madhavi Bhave
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PLEASE do read the posting guide http://www.R-project.org/posting-guide.html
and provide commented, minimal, self-contained, reproducible code.
