The other week, I posted a simple algorithm to figure out Aumann-Serrano riskiness. The algorithm is slow and not very inventive, so I have been brainstorming all week how to improve it.

convergence illustrated

Convergence for the calculation of A-S Riskiness for weekly AAPL returns

Since we know exactly the value we are trying to reach and the parameters of the output, I figured we could converge on the solution from both sides and arrive at the solution much more quickly.

Thus, I redesigned the algorithm to bounce back and forth between max and min values, dividing by half for each iteration. Here is the source code for my redesigned version of asRisk(). As always, feed it a vector of possible returns. Read the rest of this entry »