40
votes
Accepted
Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?
Very obscure historical example:
From 1287 to 1295, the Danish nobleman Stig Andersen Hvide was leading a band of outlaws from the island of Hjelm supported by the king of Norway against the king of ...
- 682
37
votes
Accepted
Why do celebrities get high wages?
If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like "at least as much as I could earn by doing the same job ...
- 16.9k
29
votes
Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?
https://en.wikipedia.org/wiki/Operation_Bernhard (an exercise by Nazi Germany to forge British bank notes. The initial plan was to drop the notes over Britain to bring about a collapse of the British ...
- 1,143
19
votes
Why do celebrities get high wages?
I suggest to learn more about the Economics of Superstars. Within the economics field, the "superstar" term is "...used to refer to extreme wage outliers (Adler, 1985; Rosen, 1981). These outliers are ...
- 342
13
votes
Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?
David Petruccelli writes in "Banknotes from the Underground: Counterfeiting and the International Order in Interwar Europe"
In December 1925, a group of Hungarian nationalists were caught ...
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9
votes
Accepted
Has anybody seen anything this expression before?
$p\cdot z(p)$ is total revenue (price times quantity), and so its derivative $\frac{\mathrm d}{\mathrm dp}pz(p)=pz'(p)+z(p)$ is marginal revenue.
- 15.4k
8
votes
Accepted
Why does Russian ruble conversion rate to USD remains constant at 1 to 0.01?
Currently there are quite a few restrictions on US to Russia bank operations. The answer is that Google Finance gets its data for the exchange rates from a specific service, Morningstar, who are ...
- 28.7k
7
votes
Mathematical open problems that (when answered) might unlock MAJOR mathematical (micro)economics/finance/econometrics discoveries
People have argued that if $P \neq NP$ then efficient markets are impossible and certain equalibria may not exist. However, they may hold approximately, so I'm not sure if this qualifies. Additionally,...
- 16.3k
7
votes
Accepted
Foundational equations or concepts of Finance
Considering this is an Economics Stack Exchange site, I’m going to answer in the spectre of Financial Economics. These are the most foundational equations and ideas of Financial Economics to ...
- 1,044
7
votes
Accepted
What institutions are examples of "shadow banking"?
While whomever told you about "shadow banking" in China is correct that in an international context, the term can often refer to informal banking arrangements (the earliest use of the term); ...
- 6,374
7
votes
Accepted
What is the equation $\mathbb{E}[mR]=1$?
This is an important result in financial economics (asset pricing) but not trivial to explain intuitively. I do my best to give you the big picture and get you started on your research.
R is the ...
- 836
7
votes
Prove that variance of a portfolio cannot exceed variance of individual assets
Let $P = \alpha A + (1-\alpha) B$ where $A$ and $B$ are returns (random) from the two assets, and $P$ is their portfolio.
Variance of portfolio $P$ can therefore be written as
\begin{eqnarray*} \...
- 8,316
6
votes
What institutions are examples of "shadow banking"?
From the New York Fed:
Shadow banks intermediate credit through a wide range of securitization and secured funding
techniques such as asset-backed commercial paper (ABCP), asset-backed securities ...
- 6,578
6
votes
Does an instant settlement system (such as blockchains) eliminate the possibility for short selling?
Imagine:
I borrow 1 bitcoin from you and agree to pay you back $(1+r)$ bitcoin in a month.
I immediately sell the bitcoin you lent me.
One month from now, I buy $(1+r)$ bitcoin and pay you back.
If ...
- 906
6
votes
Accepted
How did the derivatives market 'collapse' in 2008?
The question is quite complex and an answer should be far beyond looking only at the structure of the derivatives, but i try my best.
The initial situation:
Between 1998 and 2006, the price of the ...
- 319
6
votes
Accepted
What at all justifies income taxes (as opposed to sales taxes only)?
There's a fair amount to unpack in the question, so it might be useful to take it step by step, and consider everything from a more abstract, economic theory perspective.
...those who are more ...
- 1,370
6
votes
Why use marginal rather than average tax rates in incentive analysis?
People make decisions based on how the decision will change things. If I work an extra \$1000 worth of time, then I have to pay $\$1000 * \text{marginal tax rate}$ in taxes. The average rate is ...
- 1,182
6
votes
Accepted
Example of Law of One Price holds but No Arbitrage Fails
Examples where this happens are always extreme and contrived. I can think of two kinds of examples. The first is where you have an asset that for some reason has a price of zero or negative but a ...
- 9,345
6
votes
Accepted
Are no arbitrage models and equilibrium models equivalent?
...no-arbitrage models (such as Black-Scholes and HJM) are equivalent to
equilibrium models (such as CAPM or C-CAPM).
Short Answer Yes, for models where asset prices are assumed to be Ito ...
- 2,619
5
votes
Accepted
Apply Ito's Lemma to exponential martingale
$\newcommand{\dd}{\, \mathrm{d}}$
If we apply Ito's lemma,
then
\begin{align*}
\dd \xi_t &= -\xi_t \dd X_t + \frac 12 \xi_t (\dd X_t)^2\\
&= -\xi_t \left(\frac 12 \lambda_t^2 \dd t + \...
- 9,345
5
votes
Why do celebrities get high wages?
The other answers already give a good explanation about how actors are not easily replaced. But I'd like to highlight a flaw in the premise of your question: namely that you are cherry-picking data. ...
- 151
5
votes
Accepted
Deriving and using the pricing equation
As regards the first question, the "$p_t=...$" expression is conceptually and qualitatively useful because, at the optimum, it relates price with consumption and expectations. Mathematically it is an ...
- 33.4k
5
votes
Accepted
Prove that variance of a portfolio cannot exceed variance of individual assets
Let $w$ denote the weight on $A$ so that $1-w$ is the weight on $B$.
Recall from the properties of variance that
$\sigma_p^2 = w^2\sigma_A^2 + 2w(1-w)\sigma_A\sigma_B \rho_{AB}+ (1-w)^2\sigma_B^2$
...
- 836
5
votes
Accepted
Why is JPY considered a "safe currency"?
Because:
they are a massive exporter, meaning their capital account is negative, and thus they own a lot of assets abroad. Therefore, as this site explains:
When a crisis erupts, the Japanese ...
- 8,581
5
votes
Accepted
Why do companies sit on cash while they have debt?
Debt is cheap. Flexibility is valuable.
They hold debt + cash up to the point where the value of flexibility is still greater than the net cost of servicing the debt minus any interest earnt on the ...
- 8,123
5
votes
Utility theory and portfolio optimization: utility of what exactly?
In mean-variance optimisation I have typically seen the below quadratic utility function where $𝐸[𝑅]$ is the expected return (or mean return) of a possible portfolio, $\sigma^{2}$ is the return ...
- 1,087
5
votes
Accepted
Who invented these key notions in Finance?
Net Present Value (NPV) as a soft concept existed probably even in antiquity but it was formalized and made popular by Irving Fisher in his book the Rate of Interest.
Internal rate of return is ...
- 54.4k
5
votes
Proof that stochastic discount factor is positive in complete markets
...the completeness of markets implies that the stochastic discount
factor is strictly positive...
This statement is not quite correct.
Rather, the agent's optimality condition implies that market is ...
- 2,619
5
votes
Accepted
HARA preferences details
The paper Optimum consumption and portfolio rules in a continuous-time model (Merton (1971)) presents (as far as I know, the initial presentation.
[
Next we turn to a paper that discusses the ...
- 16.3k
5
votes
Accepted
Elasticity of demand functions
In the case of linear demand $d_i=a_i-x_iP$ (assuming $d_i$ is quantity demanded by individual $i$), the price elasticity of demand at point $(d_i,P)$ is
\begin{equation}
\epsilon_i(d_i,P)=x_i\cdot \...
- 15.4k
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