Return is the most fundamental concept in investment. There are two methods to measure returns: Arithmetic return and geometric return. The standard investment theory, Markowitz portfolio theory and CAPM, uses arithmetic return. Geometric return provides more accurate and precise measurement of...

The Black-Scholes option theory provides a simple analytical model about the yields of corporate bonds. We extend the theory to model the yields of default free government bonds from a simple observation. From the purchasing power perspective, the values of corporate and government bonds follow...