This is a brief techy note on compounding in models, prompted by some recent work on financial functions, i.e. compound interest. It’s something you probably know, but don’t think about much. That’s because it’s irrelevant most of the time, except once in a while when it decides to bite you.
Suppose you’re translating someone’s discrete time model, and you decide to translate it to continuous time, because Discrete Time Stinks. The original has:
bank balance(t+1) = bank balance(t) * (1+0.1)
So you translate as: Continue reading “On Compounding”