5

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 basically a special application of NPV. It was also first formally introduced in Fisher's book although he called it 'rate of return over costs'. Duration of bonds ...


5

Equilibria: in the macroeconomic sense of aggregate equilibrium where all markets clear, markets are most likely never in any equilibrium but rather in constant flux between different equilibria, because the market clearing macroeconomic equilibrium always depends on real and also in short run nominal factors which constantly change. Hence it does not make ...


5

...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 semimartingales (where the martingale part is a Brownian integral), although a more general argument is needed than that suggested by the special cases typically ...


4

There seems to me no relationship between the general direction of price movements and market volatility. Clearly the market disagrees with you. As the saying goes, "markets go up in an escalator and down in an elevator"---just take the recent mid-March correction and subsequent rebound of, say, the S&P500 index. Price and its properties are outcomes ...


4

(Looking at the question and notation used more closely, the formulation seems to be problematic in couple places.) General Fact Let $W$ be standard Brownian motion with respect to filtration $( \mathscr F_t )_{t \in [0,T]}$. Consider $(L_t)_{t \in [0,T]}$ defined by $$ \frac{dL_t}{L_t} = \psi_t dL_t, \; L_0 = 1. $$ In general, $L_t = e^{\int_0^t \psi_s ...


3

Your misunderstanding comes from the fact you are treating a penny stock as an option. They are not the same this is just a metaphor. The difference that makes the difference here is ownership. The reason the strike price would theoretically be zero is, for a penny stock you own the underlying asset, so you would not pay to own something you already own. ...


3

This was most likely reference to the Fisher hypothesis. As argued by Engsted & Tanggaard (2002): classical economic theory, especially the Fisher hypothesis, according to which expected nominal asset returns move one-for-one with expected inflation such that expected real returns are independent of expected inflation. A related implication is that ...


2

A great starting point is "Fundamentals of Corporate Finance", Ross, Westerfield & Jordan. This book will give you a good overview of key concepts in finance. This book is widely used in introductory courses for non-finance majors, to both teach some fundamental ideas, and give a panoramic view of the field. "Trading" will probably be the topic that ...


2

Let $L$ be the loan amount, then $L=P\frac{1-(1+i)^{-n}}{i}$ The balance at time $t$ is defined as the present value of the remaining payments, $B_t=P\frac{1-(1+i)^{-(n-t)}}{i}$ By using the following equations $I_k+C_k=P$ and $I_k=iB_{k-1}$ where $I_k$ is the interest paid at time $k$ we derive the following equation $C_k=\frac{P}{(1+i)^{n-k+1}}$ and ...


1

The difference between them is as follows: International Economics: Following the definition from the famous textbook by Krugman et al. (2017) the international economics is defined as a branch of economics that focuses on the special problems of economic interaction between sovereign states. Financial Economics: According to W. Sharpe financial economics ...


1

I cannot really follow your formulas, what is the logic behind them? Seems to me there is no way to divine three state risk-neutral probabilities from 1 financial instrument's prices. The equation $$ p_1 288 + p_2 180 + (1 - p_1 - p_2) 120 = 180 $$ is underdetermined, there are infinitely many solutions to it. Now if you solved the equation system $$ \...


1

There's a bunch of things you could look at. Here's a couple: Foreign currency reserves. Does Switzerland have a lot of dollars on hand? If so, there's nothing to worry about, the peg will hold. Switzerland can just buy CHF using dollars, increasing the demand and therefore the price, until the price is back to normal. (CHF is the abbreviation for the Swiss ...


1

The simplest way to understand this is to write out the numbers for a particular loan. You can track the balance, and interest over time. Very easily done in a spreadsheet. The amount of principal repaid in each payment is increasing as time passes, as the amount of interest paid falls (since the interest is proportional to a falling principal balance).


1

Typically junk bonds, given their speculative grade, are undervalued as people avoid them. Therefore the spread over treasuries is more than the risk of default, by buying junk bonds and selling treasuries, to hedge interest rate risk. Often profits can be achieved by buying junk bonds and selling treasuries, unless the junk bond defaults. Wikipedia doesn't ...


1

You assumed that junk bonds do not default. They do default. So people will price junk bonds at a greater yield than Treasuries. It can’t be arbitraged since the probability of default (and associated loss) is unknown. An arbitrage implies locking in an abnormal profit at no risk. You cannot hedge out that default risk without using an instrument like a ...


1

When you buy a put option, you're taking possiession of something from someone else, and paying for it. When you short, you're borrowing shares, and selling them, which brings cash in for you.


1

You seem to have two questions: does the increase in electronic deposits (through banks making loans) create new cash and can all banks go bankerupt at the same time? Your first question basically is the "loans first model" of money creation: loans drive the monetary base (think printed money in your wallet) instead of the monetary base driving new loans. ...


1

All risk-free rates are essentially tied to Fed policies, so it makes little sense to ask for a measure that is independent. They are all tied together via arbitrage. Yes, there are spreads between instruments, but there is no way of saying which particular one is “the” risk-free rate.


1

SOFR is becoming more and more popular Also there are other measures of repo rates, and also so futures on sofr


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The paper is not trying to say that equation (10) is derived from equation (8). Equation (8) tells us how household makes its optimal consumption and 'saving' decision (it gives us demand for investing the wealth into bonds/risky assets). The equation (10) then tells us that given the household optimal decisions (which depend on utility (8)), those ...


1

This is referring to a general principle in finance. What matters most is the assets you have and the things you invest on, not really the way you finance these investments. In the balance sheet, the asset side has the information about the assets you have, while the liability side has information about how you financed them. This general principle comes ...


1

In dealing with problems like this, it's helpful to do it in stages. You know that the two dealers take the wholesale price $r$ as a given (they can't change that), and car dealer $i$ choose retail price $q_i$ to try to maximize their profits $q_i \cdot (P - r)$. You also know that these car dealers are exactly the same... they have the same cost, set some ...


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