Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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1answer
20 views

Is there a good mechanism to incentivize leveraged firms to take less risks?

It seems that there are some circumstances, say when the government foresees a financial crisis, where it would like firms to hedge, take less riesk etc. However, leveraged agents benefit from risk, ...
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1answer
25 views

Basel affecting the bank behaviour?

In EU, Banks have changed their behaviour lately, e.g. as acting liquidity providers to certain markets like notes etc. Introduction of Basel III is probably one reason (tighter capital and ...
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1answer
25 views

Which institutions are in the eurodollar market?

My main question is: how much of the eurodollar market is claims issued by depository institutions or Bank Holding Companies? It's about a $4tn market, but who's in it? Who is funding themselves in ...
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0answers
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How to use the Girsanov theorem to prove $\hat{W_t}$ is a $\hat{\mathbb P}$-Brownian motion?

Let $T > 0$, and let $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathbb P = \tilde{\mathbb P}$ (risk-neutral measure) and $\mathscr F_t ...
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1answer
118 views

Connection between negative interest rates and negative bond yields

In an answer to one of my other questions: Why does falling global bond yields signal coming deflation, the answerer states: Whereas central banks set rates by policy, long term bond yields are ...
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1answer
65 views

Negative probabilities - Can we have negative payments in bonds?

In Half of a Coin: Negative Probabilities, the author mentions bond duration. Suppose we have payments at times $t = 1,2,...,n$ denoted respectively by $R_1, R_2, ..., R_n$ and the discount factor is ...
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1answer
64 views

Given $\mathbb Q$ and $X_t$ is $\mathbb Q$-Brownian, find $\frac{d\mathbb Q}{d\mathbb P}$ / Uniqueness of Brownian or Radon-Nikodym derivative

The problem: Let $T >0$, and let $(\Omega, \mathscr F, \{ \mathscr F_t \}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathscr F_t = \mathscr F_t^W$ where $W = \{W_t\}_{t \in ...
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2answers
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How will London's role as a financial center be affected after the Brexit and what are possible alternatives?

I looked around on this site and couldn't find anything close to what I'm asking on Economics SE, so I hope it is the right place to ask. I am interested in but have no background in economy, so all ...
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1answer
56 views

Definition of market to book value?

What is the difference between (market value of equity/book value of equity) ratio and (market value of assets/book value of assets) ratio? In my opinion both measure fairly the same? Is this correct?...
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1answer
58 views

Is this formula for net present value correct?

I have been presented with this formula for the net present value: $$NPV = I_o + \sum \frac{F_t}{(1+r+p_t)^t},$$ where $F_t =$ net cash flow for period $t$; $R=$ required ret of return; $I_o=$ ...
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1answer
191 views

Are there any examples where fractal geometry is applied in economics or finance?

Can fractal geometry give better insights into the working of the financial markets or give rise to better financial models? If so, are there any existing models?
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Do Hong Kong highschool teachers earn more than Hong Kong quants?

According to Teach in Hong Kong, Hong Kong highschool teachers earn around HK\$23,530 to HK\$54,665 (approximately \$3,000-\$7,000 USD) per month while CUHK's Quantitative Finance Graduates Face ...
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1answer
128 views

Volatility of investment: Joint-Volatility of mutually independent variables

I´ve been trying to compute a volatility of invesment with currency hedging and I have a question. Let's take this example. We have our money in a fond copying the S&P500 index, which has 16% ...
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4answers
8k views

What institutions are examples of “shadow banking”?

I often hear the term shadow banking tossed around when discussing the United States and Chinese economies. What exactly is shadow banking and could you give examples of some specific companies that ...
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Why do celebrities get high wages?

In the youtube video Why We Look down on Low Wage Earners the author argued: "economics states that wages are determined [...] by the number of people willing and being able to do a given job that ...
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4answers
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Mathematical open problems that (when answered) might unlock MAJOR mathematical (micro)economics/finance/econometrics discoveries

Are there any (specific) math open problems that mathematical (micro)economics / finance / econometrics researchers wish mathematicians could solve for their discoveries to flourish? If positive, ...
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0answers
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Have there been any structural changes in the market that would lead the indexes to be trading so high?

If you look at this graph of the SnP500: You will see that it is trading at levels higher than pre 08 or 99. What systemic structural changes in the market have led it to be trading so high? I think ...
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1answer
33 views

Business plan template [closed]

i have to do a business plan as an assignment in my computer science engineering school. I'm looking for help .. can anyone provides me with a complete template ? or an example to follow thanks,
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0answers
37 views

Risk factors and diversification in asset pricing models

Consider a factor model like Fama and French (1993). Total risk has two components, systematic risk and idiosyncratic risk. Idiosyncratic risk can be diversified while systematic risk cannot. ...
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1answer
118 views

Why are people rich?

Different people become rich for different reasons, such as: Developing/selling a great product Investing Winning the lottery Inheriting family money Some of these seem more fair than others, which ...
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2answers
232 views

Foundational equations or concepts of Finance

For the other sciences it´s easy to point to the most important equations, inequalities, propositions or concepts that ground the discipline. If I want to explain Finance to a physicist say, what are ...
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1answer
360 views

Barro's (2009) rare disaster model in the AER: How to derive equation (10)?

In Barro (2009) Rare disasters, asset prices and welfare costs Barro develops a Lucas tree model with Epstein-Zin preferences. My question concerns the paper's equation (10). In this equation Barro ...
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0answers
57 views

Stiglitz 1976 on irrelevance of corporate financial policy

In this paper, Stiglitz gives a verbal argument as follows: Let us consider verbally what actions of the individuals are required to offset various actions by the firm. Assume the ...
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1answer
81 views

Academic paper which justifies why companies are run better privately

A few years ago I was reading The Economist and I remember it stated a particular academic paper that underpinned the rationale for the existence of private equity firms. I have tried to find this ...
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1answer
512 views

Demand Curves for Stocks

i am currently working on a paper on demand curves for stocks and have some questions. I've read that many models (CAPM, APT, Modigliani-Miller theorem) assume demand curves for stocks to be flat. Can ...
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1answer
130 views

How to find the variance co-variance matrix for 4 assets and market returns using the CAPM?

I understand the process on excel: calculate betas, calculate covariance with $Cov(R_{i,t},R_{j,t}) = \beta_{i,m} \cdot \beta_{j,m} \cdot \sigma^2_m$ where m is the market return and i and j are ...
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1answer
342 views

Show that $W_t - \int_0^t \xi_s ds$ is forward-measure-Brownian

Definitions and stuff: Consider a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ where $$T > 0$$ $$\mathbb P = \tilde{\mathbb P}$$ This is risk-...
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1answer
69 views

Fannie Mae and Freddie Mac as substitute benchmark bonds

"The reduction seen in US government debt in the late 1990s has led to a redution in the supply of intermediate and long-term government bonds, and some concern has arisen over this fact. In the ...
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1answer
178 views

Pricing a European call option while absence of arbitrage is violated

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
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1answer
53 views

Capital-safe Bonds?

What does it mean for a bond not to be capital-safe? I'm having some difficulty in finding in the web any explanation for this expression. Any help would be appreciated.
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1answer
1k views

Apply Ito's Lemma to exponential martingale

$\newcommand{\dd}{\, \mathrm{d}}$ Consider the exponential martingale, $$ \xi_t^\lambda = \exp \left\{ - \int_0^t \lambda_s \dd z_s - \frac 12 \int_0^T \lambda_s^2 \dd s \right\}, $$ that is used in ...
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2answers
1k views

Net Present Value in Nominal Terms

I have the following question from my homework: When calculating the net present value of an investment project, the firm of Henry & Norman expects profit in the first year to be $60,000, and ...
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3answers
260 views

By what steps and contracts does new money enter the economic system?

Like many noneconomists who read about economic history and finance, I always remain somewhat baffled by the opaque generation of currency under the federal reserve system. My understanding is that ...
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4answers
237 views

Can absence of inflation be accounted for by a reconfigured class structure?

A previous and oft-heard question asked why no inflation results from the Fed pumping money into the economy. Are we simply seeing a methodical wage suppression, thus no official "inflation," while ...
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1answer
96 views

Securities Prices in Financial Markets

Hello in the moment I am working with the book "Introduction to the Economics and Mathematics of Financial Markets" by Jakˇsa Cvitani ́c and Fernando Zapatero, which can be accessed at the link. ...
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0answers
36 views

Selling my software suite to another company (acquisition) [closed]

I am trying to calculate a price to sell my software suite to another company. Let say my revenue is \$500,000 a year with only about \$50,000 costs each year. The rate of growth of revenue has been ...
5
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1answer
621 views

How to measure Tobin's q?

How do people calculate Tobin'q empirically? Does anyone use it to make investment decisions? In particular, the version I learnt has no company debt involved with only capital under consideration, ...
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1answer
122 views

Measuring demand for banking services - (Maximum) Market Size

I am in need of a variable measuring "demand for banking services" in general, on a country level. Specifically the (maximum) size of the market for banking services for a given country. This will be ...
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1answer
124 views

What is the percentage of announced Merger & Acquistion deals actaully completed?

I am assuming that not all M&A deals announced are completed. There are factors such as anti trust laws and consumer protection agencies that legally prohibit the two companies from completing the ...
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0answers
31 views

The coming US interest rates rise by the Fed. Will it affect the european bonds?

Recently, or maybe not so recently, there has been talk of the Fed going to enter in cycle of raising the interest rates. When interest rates are expected to be risen in the future, bonds with long-...
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3answers
813 views

Why are interest rates so high in Russia?

In Russia we currently have 11% of Central Bank's interest rate and you can get credit in commercial bank for about 25% in year. Why are interest rates so high?
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1answer
29 views

Why monthly present in on line monthly payment calculator calculates as annual percent divided by 12?

Why monthly present in on line monthly payment calculator calculated as annual percent divided by 12? I think it's wrong, it should be exponential. For instance annual percent 4%. To calculate monthly ...
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2answers
786 views

Who owns German debt?

I know that Germany has huge external debt. I don't know how to find out which entities own this and especially which country they belong to.
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1answer
274 views

How does the fractional reserve banking system work?

I would like to understand better exactly how this works. I have heard a lot recently (particularly since the 2007-08 crash and Occupy movement) about money creation in particular (usually with a very ...
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1answer
166 views

Conforming mortgage loan limits by county and year

US law restricts the Government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac to purchase only those residential mortgages smaller (by origination balance) than a limit, the "conforming loan ...
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3answers
2k views

Why was Modigliani-Miller so relevant and innovative when it came out?

The Modigliani-Miller theorem*, a foundation of modern corporate finance, basically states that, in a no-frictions world, two identical firms have the same enterprise value, regardless of their ...
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1answer
148 views

Bank rate and Repo rate

Please explain the difference between Bank rate and Repo rate. Do the Bank and Repo rates affect each other?
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2answers
62 views

What's the term for consumers not being able to pay their mortgage?

Is there a term for not being able to pay your mortgage(s)? Like "personal bankruptcy", "consumer default" or something like that?
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1answer
4k views

Are bank reserves part of M1 or only part of M2, and why?

(1) Toyland earns $$100,000 revenue in cash this week. Toyland managers use this $100,000 to pay down a short-term loan from Bank One. Bank One keeps the cash in reserve. As a result of this ...
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0answers
273 views

Semi Annual Deposit that earns 5% Compounded Quarterly

I was asked: A man planned to endow 1000000 USD to his son on his son's 21'st birthday. How much is his semi-annual deposit in a special account that earns 5% compounded quarterly if the first ...

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