The question about moving average

[kong17]

Hi, everyone

Maybe the question is simple, but I am completely baffled into it.
I want to observe the daily price of electricity. And calculate the profit for a year.
I run the model with a time step of 1 day, then aggregating profits up to a year.
I found other posts about moving average in the forum, but I didn't really understand how to model it in Vensim
Another way that I saw is to use smooth function.
So, I uploaded the simple model.
I was wondering is it correct to calcuate the annual profit by this way?

Thank you very much.

Simple model.mdl

(2.38 KiB) Downloaded 142 times

[tomfid]

The SMOOTH function is an exponentially-weighted moving average.

Financial reports are generally a uniformly-weighted moving average over a fixed window.

https://www.investopedia.com/terms/m/mo ... verage-ema

I've modified your model to conform better with typical accounting. The main difference is that you don't want to smooth the stock of profit, because it's already cumulative. You want to use the instantaneous flow of profit. Then whether you use an exponential smooth or a uniform window depends on whether you want to model perceptions, or exactly replicate the reporting system.

Often the perception time will be shorter than the formal reporting interval, because people know what's happening in the organization before it's official.

Simple model 2.mdl

(5.05 KiB) Downloaded 177 times