From: ThoML <micathom@...>
Date: 2008-02-11T02:14:57+09:00
Subject: Re: [QUIZ] Internal Rate of Return (#156)

> x=1;9.times{x=x-(n=d=t=0;i.map{|e|n+=_=e*x**t-=1;d+=t*_/x};n/d)};x-1

Well, my solution is slightly more verbose. Which doesn't imply it
yields better results. It uses the Secant method (which no other
solution has used yet, ha!) and the code in the core method was
shamelessly copied from wikipedia. Yeah! By default, my solution tries
to find values that converge with with Float::EPSILON. If the values
diverge, the interval is scanned for zero-values, which could also be
done in the first place (since this allows to find multiple roots).

Regards,
Thomas.



#!/usr/bin/env ruby19

require 'date'

module IRR
    module_function

    # Use Secant method to find the roots. In case, the upper and
lower
    # limit diverge, reset the start values.
    #
    # This method may miss certain IRRs outside the [0.0..1.0]
    # intervall. In such a case use #irrer or set the optional :a
    # (lower limit) and :b (upper limit) arguments.
    #
    # Based on:
    # http://en.wikipedia.org/w/index.php?title=Secant_method
    def irr(values, args={})
        a  = a0 = args[:a] || 0.0
        b  = b0 = args[:b] || 1.0
        n  = args[:n] || 100
        e  = args[:e] || Float::EPSILON
        c0 = (a - b).abs
        ab = nil
        n.times do
            fa = npv(values, a)
            fb = npv(values, b)
            c  = (a - b) / (fa - fb) * fa;
            if c.nan?
                does_not_compute(values)
            elsif c.infinite?
                # break
                return c
            elsif c.abs < e
                return a
            end
            # Protect against bad start values.
            if c.abs > c0
                ab ||= guess_start_values(values, args.merge(:min =>
a0, :max => b0))
                if !ab.empty?
                    a, b, _ = ab.shift
                    c0 = (a - b).abs
                    next
                end
            end
            b  = a
            a  = a - c
            c0 = c.abs
        end
        does_not_compute(values)
    end

    # Guess appropriate start values, return all solutions as Array.
    def irrer(values, args={})
        guess_start_values(values, args).map do |a, b|
            irr(values, args.merge(:a => a, :b => b))
        end
    end

    # Calculate the NPV for a hypothetical IRR.
    # Values are either an array of cash flows or of pairs [cash,
    # date or days].
    def npv(values, irr)
        sum  = 0
        d0   = nil
        values.each_with_index do |(v, d), t|
            # I have no idea if this is the right way to deal with
            # irregular time series.
            if d
                if d0
                    t = (d - d0).to_f / 365.25
                else
                    d0 = d
                end
            end
            sum += v / (1 + irr) ** t
        end
        sum
    end

    def does_not_compute(values)
        raise RuntimeError, %{Does not compute: %s} % values.inspect
    end

    # Check whether computation will converge easily.
    def check_values(values)
        csgn = 0
        val, dat = values[-1]
        values.reverse.each do |v, d|
            csgn += 1 if val * v < 0
            val = v
        end
        return csgn == 1
    end

    # Try to find appropriate start values.
    def guess_start_values(values, args={})
        min   = args[:min]   || -1.0
        max   = args[:max]   ||  2.0
        delta = args[:delta] ||  (max - min).to_f / (args[:steps] ||
100)
        vals  = []
        b, fb = nil
        # The NPV is undefined for IRR < -100% or so they say.
        min.step(max, delta) do |a|
            fa = npv(values, a)
            if fb and !fa.infinite? and !fb.infinite? and fa * fb < 0
                vals << [b, a]
            end
            b  = a
            fb = fa
        end
        return vals
    end

end


if __FILE__ == $0
    values = ARGV.map do |e|
        v, d = e.split(/,/)
        v = v.to_f
        d ? [v, Date.parse(d)] : v
    end
    puts "Default solution: #{IRR.irr(values) rescue puts $!.message}"
    begin
        IRR.irrer(values).zip(IRR.guess_start_values(values)) do |irr,
(a, b)|
            puts '[%5.2f..%5.2f] %13.10f -> %13.10f' % [a, b, irr,
IRR.npv(values, irr)]
        end
    rescue RuntimeError => e
        puts e.message
    end
    puts "Possibly incorrect IRR value(s)" unless
IRR.check_values(values)
end