Harmonic Average

The inverse of the arithmetic average of inverse terms. With n as the number of observations and ri as the underlying rate or price, the harmonic average is:


                                           n                                
_________________________                                    1/r1 + 1/r2 +...1/rn 
The harmonic average is used in the pricing of certain non-standard options and when averaging ratios such as fixed charge coverage and price earnings ratios.

Glossary * H