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Intermediate4 equations~5 hours

Economics and Social Systems

Markets, inequality, and models of human behavior.

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  1. 1

    Black-Scholes Equation

    Research
    ∂V∂t+12σ2S2∂2V∂S2+rS∂V∂S−rV=0\frac{\partial V}{\partial t} + \frac{1}{2}\sigma^2 S^2 \frac{\partial^2 V}{\partial S^2} + rS\frac{\partial V}{\partial S} - rV = 0

    PDE for option pricing—hedging eliminates risk and determines fair derivative value.

    Social Sciences
    Finance
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  2. 2

    Cobb-Douglas Production Function

    Intermediate
    Y=AKαL1−αY = A K^\alpha L^{1-\alpha}

    Output from capital and labor with constant returns to scale exponent α.

    Social Sciences
    Economics
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  3. 3

    Gini Coefficient Formula

    Intermediate
    G=∑i=1n∑j=1n∣xi−xj∣2n2xˉG = \frac{\sum_{i=1}^n \sum_{j=1}^n |x_i - x_j|}{2n^2 \bar{x}}

    Measures inequality—0 is perfect equality, 1 is maximum inequality.

    Social Sciences
    Economics
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  4. 4

    Present Value Formula

    Beginner
    PV=FV(1+r)nPV = \frac{FV}{(1 + r)^n}

    Future money is worth less today—discounted by interest rate and time.

    Social Sciences
    Finance
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