Cournot Model (Competition)

By definition this model assumes that each firm treats the output of other firms constant in order to determine it’s own output. In theory, this would lead to market equilibrium because each firm is doing this so over time, price and output would lead to the most ideal output in all firms in the market. Also, prices are essentially determined by the expected output of the other firms.

Tranche

The basic definition of Tranche is a portion or slice of something else. In finance and monetary terms, it deals with dealing risk among the capital or liability being sold or structured in the institution or among institutions in the market.

 

Grades are issued per Tranche to help determine the measure of risk. In theory, this is to help buying institutions determine the liability to them as well as general riskiness (usually versus the rest of the market).

 

Although the benefit of having external firms having a grade preset for firms that are consistently accurate and updated, it can prove difficult for investors who do not have the experience or full implications of the data presented to them. This relates to the inherent flaw of preset information in that it is only as good as the person analyzing that data. In order for the data to be most useful, equal access is only the first step, if not a prerequisite, in ensuring that the data is analyzed as it should, rather than pure random data extraction.

 

In short, Tranche as an idea is good. In practice, it is only as good as how it is presented and analyzed in the market.

The Good, The Bad, and the Funny

What's the difference between a good accountant and a bad accountant?

A bad accountant looks at a cloud and says there's nothing there.

A good accountant looks at a cloud and says "Let me reconcile the debate on the density of clouds and bill you tomorrow for it."

Tree Saver

Today I received several notices from my bank telling me that terms had been changed on my accounts. I received one envelope per account. I find that a reason that banks could be losing money is due to this waste of money. I find it startling that banks would not find a much easier solution to save money. I just so happen to have a solution. I say A solution because there are always alternatives (as any economics students can tell you). This solution is to send ONE letter to every customer saying that they can login to their online account to view change(s) made to their account(s). The bank could further offer to either have the customer download/print the terms change themselves or have the bank mail them a copy based on account(s) chosen, quantities, etc. This idea is similar to how students can order transcripts. Not only do the banks save money by not having to print off as many forms, mail as many letters, etc., they can make money based on the number of people who actually order these service changes. I for one would print it out myself because the bank took the initiative to actually print it off myself.

Game Theory – Backward Induction

1. Backward Induction – Looking forward to the final decision node(s) and reasoning backwards

2. Equilibrium Strategy (of a firm given sequential strategic interaction) – a sequence of a firm’s best actions, where the actions are taken at the corresponding nodes

 

This theory in a basic sense is saying that if you have a particular outcome that you want to related to a current state, reasoning backwards would be the best way to create the best link between point A and point B.

 

 

Terms and definitions credited to ‘Marginal Economics and Organizational Architecture’ textbook by Brickley,  Smith, and Zimmerman

Normalization

Normalization is an economic effect (not necessarily a term) that describes in any supply-demand economy, when the economy is not in equilibrium will generally aim to return to equilibrium. Various economic models explain how markets vs government should create this return to equilibrium. In the United States, capitalism generally leads towards a market based economy with minimal government intervention. How one defines “minimal” is all relative but the Obama administration would argue that the amount of bailout is not 100% but enough for the road to recovery. The point is this, the economy is on the way to recovery and equilibrium but the market will get there. Two examples would be that the banks are preparing to return the bailout money and that the market reached the 10,000 level and has remained in the vicinity.

Surge

Based on the optimistic forecast by major Dow components, the market surged to close at about 10,200 points. The Group of 20 said that they would be keeping at par with the economy, which in these times is a decent enough prediction, but probably not enough good news for some. At this time though, mental factors can help more so than actual results but we need to stay away from emotional decisions which have repeatedly proven to have disastrous results (i.e. tech bubble and housing growth to name the most recent factors).

 

http://money.cnn.com/2009/11/09/markets/markets_newyork/index.htm