The Geometric Mean Model In Finance

Abstract

Geometric mean has relatively few applications in the field of science and engineering. However recent work on geometric mean has discovered very important and useful applications of the geometric mean in international banking. This paper investigates the reciprocity property of the geometric mean over the arithmetic and harmonic means, which makes it useful in the field of finance. Applications are discussed on the computation of average daily exchange rate of a currency in a given period and also of a simple effective exchange rate index for a currency relative to a reference period.