Log Returns

Discussion in 'Automated Trading' started by mahras2, Oct 10, 2005.

  1. mahras2


    Hey can someone tell me how log returns are calculated?

    I understand its Log(future value/value). But I dont understand what base I should use. For example on the link below it has it such that the future value is 110 and the current value is 100. However, log base 10 is 0.04 not the value they have which is 0.09. What am I doing wrong?


  2. It is natural logarithm, i.e. in base 'e'. Usually mathematicians use 'ln', but people in finance prefer to use 'log'....don't ask me why...perhaps to many stupid people in this industry who couldn't adapt if the right mathematical terminology was used...
  3. You need natural log, not log10.

    >> log(110/100)

    ans =


  4. mahras2


    Thanks a lot guys. I just noticed that on my notes I had LN. Would have saved me all the hassle haha. Now to finish the homework.