09 May 2017

Dow Jones Industrial Average: Heartbeat of America

Source Wikipedia The Dow Jones Industrial Average is a composite of 30 stocks that is price-weighted and the character of the average can be assessed merely from the first 3 stocks as a sample, taken alphabetically. 3M is an industrials company that makes Scotch Tape for example and much of its early history was innovation in saving money using chemical processes such as extracting products that had seeped into rocks....

07 May 2017

Fixed Income: Perception is Reality

Reference is Handbook of Fixed Income Securities by Fabozzi. When we look at bonds we look at yields to maturity to find out what return we would get if we held the bond to maturity given the price we have to pay to purchase the bond. There is a yield curve of differing returns to differing tenors of bonds. It seems logical that longer term bonds may be more illiquid...

03 May 2017

Black-Scholes: Risk and Randomness in Options

Reference is Basic Black-Scholes: Option Pricing and Trading by Timothy Falcon Crack. The Black Scholes formula starts with defining a relationship via a partial differential equation between a stock price moving randomly with drift and a derivative price which derives from the stock price. By Ito’s Lemma, we can amount to a relationship between movements in the derivative price and the stock price. If we solve the partial differential equation...

28 Apr 2017

Venture College Admissions on Harvard Truth’s Current

Reference: The Money of Invention: How Venture Capital Creates New Wealth by Paul A. Gompers and Josh Lerner. The venture capital cycle is best explained via the college admissions process in the United States where we see young people become their own ventures from the incubation process which has many similarities to that of young firms asking for money to be invested in them. We see that young people in...

24 Apr 2017

Econometrics and Statistics: One Reality

Source is Introduction to Econometrics by Stock and Watson. Given data, econometrics uses statistics to make measurements in economics. We define probability as the proportion of time that the outcome occurs in the long run. We define a sample space as the set of all possible outcomes. A random variable comes from a random outcome and this random variable can take on different numbers: it is a numerical summary of...

11 Apr 2017

Derivatives: Ghost of Future Shadows

Credit to Options, Futures, and Other Derivatives by John C. Hull. Derivatives in the form of the futures market can be used to hedge underlying delivery of goods. For example, suppose I owe assets to be delivered in six months time to my significant other. I first have to make sure I have these assets in six months time so I enter into a long futures contract for delivery of...

24 Mar 2017

Corporate Finance: Valuation for whom and for what

Corporate finance is the study of value over time and how this value grows within a company and what companies should do to budget their capital in the interest of increasing value. Generally, we look at net present value as a way of discounting cash flows in the future to a present aggregate that represents the value of the choice to undergo the project, where if this value is positive...

07 Mar 2017

Labor, Capital and Balance: How to Survive The Clash of The Titans

Based on Macroeconomics by Greg Mankiw Macroeconomics primarily concerns the study of growth while microeconomics focused more on equilibrium. When we speak of growth, we speak of available labor and capital to form a certain production function and the growth of this function. Population growth is a source of labor growth and so is capital growth that net exceeds the rate of depreciation. We generally model output as labor times...

07 Mar 2017

Finding Equilibrium: What Makes a City Powerful?

Content based on Edward Glaeserâ€™s work: Economics Approach to Cities. Cities are an area of economics focus because they represent a clustering of people where government policy cannot be avoided due to externalities outside the market mechanism so these policies generate economics discussions. Cities are a special type of equilibrium where people are part of the equilibrium with all their considerations. Externalities are when your voluntary transaction with someone impacts...

07 Mar 2017

Paradoxes, Probabilities and How to Analyze Them

Content based on Kreps: “A Couse in Microeconomic Theory.” Microeconomic theory serves to answer the question of how do rational actors make decisions in a way that creates an equilibrium. Microeconomic theory involves setting up maximization over choice functions where the preferences of the actors are given and an equilibrium is set up that creates a relationship between various inputs and outputs of the model assuming the market clears and...