How Any Transaction Vector Can Be Uniquely Partitioned into Soper Transactions with Strictly Decreasing IRRs: And Some Consequences

17 Pages Posted: 4 Oct 2015

Date Written: October 2, 2015

Abstract

A Soper transaction is defined here as any transaction where the invested capital is non-negative at all times during the life of the transaction. This paper proves that any transaction whose first non-zero term is negative can be uniquely partitioned into Soper transactions with strictly decreasing internal rates of return, (IRR). The IRRs of the partitioning transactions put bounds on the IRRs of the original transaction. The partitioning theorem gives a simple characterisation of the truncation points in Hick’s fundamental theorem. The partitioning theorem also has applications to the problem of the optimal time for an investor to sell the remaining terms in a transaction.

Keywords: investment theory, internal rate of return, net present value

JEL Classification: E22, G31, M40

Suggested Citation

Cuthbert, James, How Any Transaction Vector Can Be Uniquely Partitioned into Soper Transactions with Strictly Decreasing IRRs: And Some Consequences (October 2, 2015). Available at SSRN: https://ssrn.com/abstract=2668092 or http://dx.doi.org/10.2139/ssrn.2668092

James Cuthbert (Contact Author)

Independent ( email )

No Address Available
United Kingdom

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