@railpath/finance-toolkit/dist/utils/irr/calculateInitialGuess.js

Production-ready finance library for portfolio construction, risk analytics, quantitative metrics, and ML-based regime detection

"use strict";
Object.defineProperty(exports, "__esModule", { value: true });
exports.calculateInitialGuess = calculateInitialGuess;
/**
 * Calculate improved initial guess for IRR calculation
 *
 * Uses a simple approximation based on total cash flows to provide
 * a better starting point than a fixed value, which can improve
 * convergence speed and stability.
 *
 * @param cashFlows - Array of cash flows (positive for inflows, negative for outflows)
 * @returns Initial guess for discount rate (as decimal)
 */
function calculateInitialGuess(cashFlows) {
    if (cashFlows.length === 0) {
        return 0.1; // Default fallback
    }
    // Calculate approximate return based on total cash flows
    const totalInflows = cashFlows.reduce((sum, cf) => sum + Math.max(0, cf), 0);
    const totalOutflows = Math.abs(cashFlows.reduce((sum, cf) => sum + Math.min(0, cf), 0));
    const finalValue = cashFlows[cashFlows.length - 1];
    // Simple approximation: (final - outflows) / (inflows + outflows)
    if (totalOutflows > 0 && totalInflows > 0) {
        const approxReturn = (finalValue - totalOutflows) / (totalInflows + totalOutflows);
        // Clamp to reasonable range
        if (approxReturn > -0.99 && approxReturn < 10.0) {
            return approxReturn;
        }
    }
    // Fallback: check if return is likely negative
    if (finalValue < totalOutflows) {
        return -0.1; // Start with negative return guess
    }
    return 0.1; // Default: 10% annual return
}