Abstract: | The present paper addresses the problem of estimating returns on financial instruments when there is incomplete information about the instrument's cash flows. The problem is shown to resolve itself as an exercise in numerical analysis. In theory, the true return is obtained as the solution of an integral equation, but since the required functions are incompletely specified, numerical estimating techniques must be applied. Alternative numerical methods are examined, each of which make different assumptions about the time series properties of the financial instrument's cash flows. It is shown that the estimated returns are highly sensitive to these assumptions and thus to the numerical technique used. |