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Your get the basic intuition, but real-life situation is a bit different. First, I didn't really understand what you meant by "try to catch some 'fool'", but what you are calling foreign exchange ...

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The idea is that since agents are ex-ante identical, they should have the same (ex-ante) expected utility. Ex-ante identical means that even the agent does not know what's his type until resolution ...

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Prices changing so frequently is simply the result of an adjustment between demand and supply in the market. Demand and supply change all the time, because market venues allow them to change very ...

529 views

I think you are missing the credit risk attached to any loan. You, as an individual borrower, are far more likely not to reimburse your loan than a bank. Thus the loan is far less risky. Central bank ...

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I guess the question is : which asset would yield the higher risk premium or expected return? Risk premium depends indeed on the intrinsic characteristics of the asset, and on the pricing kernel, in ...

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This does not work like that. If you want to add-up all the debt in the world you will not end-up with 0. Think about a situation in which I owe you \$100, you owe someone else \$100, and this ...

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The first order condition of the maximization problem is \begin{equation} f'(x)-s=0\iff f'(x)=s \end{equation} We can then replace $x$ by $x(s)$ because this is the optimal value given $s$. Since ...

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Your system may be rewrite as : \begin{equation} \begin{bmatrix}1&-\frac{1}{3}\\-\frac{1}{8}&1\end{bmatrix}\cdot\begin{bmatrix}s_1\\s_2\end{bmatrix}=\begin{bmatrix}2\\7\end{bmatrix}\end{...

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If I understand well your point, you want to know whether 2 agents (say countries) can make transaction if they don't each gain from that trade. In general, agents optimize some function, called the ...

142 views