Deterministic definition of the capital risk

Details Deterministic definition of the capital risk Deterministic definition of the capital risk

2008-05-20

arxiv.org/abs/0805.3129v1

Economy

Quantitative Finance

Risk Management

9 pages,

Scientific paper

In this paper we propose a look at the capital risk problem inspired by deterministic, known from classical mechanics, problem of juggling. We propose capital equivalents to the Newton's laws of motion and on this basis we determine the most secure form of credit repayment with regard to maximisation of profit. Then we extend the Newton's laws to models in linear spaces of arbitrary dimension with the help of matrix rates of return. The matrix rates describe the evolution of multidimensional capital and they are sensitive to both quantitative changes of individual elements and flows between them. This allows us for simultaneous analysis of evolution of complex capital in both continuous and discrete time models.

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