The Geometric Mean is also known as the compounded annual growth rate. The example below shows how to use the geometric mean to calculate the return on a portfolio. It is important to understand that the geometric average should be used instead of the arithmetic mean in the context of a time-series calculation.
Key learning objectives:
Understand the geometric average
Analyse the situations in which the geometric average is more appropriate than the arithmetic average
Introduction to Options, Pricing and Use Cases
Peter Eisenhardt • 13:18