## Modeling a Risk-Averse Investor in the Stock Market Pt. 3: Trying to Find a Closer Approximation for the net value

In this blogpost, I will attempt to find an approximation for the series posted in part 2. In part #2, we had the table:   ROI based upon the period we invested in  (1/r)         Sum of each investment   Period 1 ROI  Period 2 ROI Period 3 ROI Period 4 ROI Period J   *SPECIAL CASE* \$1/1 \$1/1 \$1/1 \$1/1 + … 1+1+1+1 + …  = \$J Investment #1 \$1/2 \$1/4 \$1/8 \$1/16 + … ½ + ¼ + 1/8 + 1/16 + … = \$2.00 Investment #2 \$1/3 \$1/9 \$1/27 \$1/81   + … \$1/3 Continue reading Modeling a Risk-Averse Investor in the Stock Market Pt. 3: Trying to Find a Closer Approximation for the net value

## Modeling a Risk-Averse Investor in the Stock Market Pt. 2:

*This is just a continuation of the first blogpost titled “Modeling a Risk-Averse Investor in the Stock Market Pt. 2”. * Finding an Upper Bound for our Heuristic: To approximate the upper bound, let’s take J –> ∞ and not include the investment# 1 case as it is a special case then we have: Above, we shifted the index of r by 1. It now has to have an initial value of r = 2 insuring the first-rate equals ½. We can make another table to intuitively understand what this represents:   ROI based upon the period we invested in Continue reading Modeling a Risk-Averse Investor in the Stock Market Pt. 2:

## Modeling a Risk-Averse Investor in the Stock Market Pt. 1:

Suppose someone wants to invest in the stock market, how would you approach modeling an individual investing in this asset class? The particular asset class at hand here is stocks. We will make intuitive assumptions about the stock market and how a risk-averse individual operates in the stock market. Then, we will try to transform said assumptions to make a simple heuristic. This heuristic will then generate a numerical value which we will describe in terms being between an upper and lower boundary. Let’s make the assumptions Creating the Assumptions: ROI on stocks to diminish overtime due to increasing market Continue reading Modeling a Risk-Averse Investor in the Stock Market Pt. 1:

## 2008 Financial Crisis Under the Magnifying Glass

It may be almost a decade after the 2008 financial crisis shook the US economy, but economists and financial managers are still trying to snuff out the causes of this pandemic. The idea of a “housing bubble” has been used to describe the confusion and ignorance around the risks of the housing market leading up to the collapse. This concept connects many different pieces within the US housing market, from borrowers to lenders to big players on Wall Street. But it is difficult for economists to pinpoint one key cause of this crisis. So the magnifying glass has been placed Continue reading 2008 Financial Crisis Under the Magnifying Glass

## Insurance for Insurance Companies

Everyone knows what companies like Geico, Allstate, StateFarm do. They provide life, health, auto, and other forms of insurance coverage for individuals like you and I. We buy insurance for protection from situations like car accidents that might cost too much to pay for ourselves. Insurance is a form of financial protection that smooths costs over a long period of time instead of having no costs for some periods followed by extremely high costs the next. Insurance companies also seek this type of financial stability, and have it in the form reinsurance. They have a massive amount of liability, but generally keep Continue reading Insurance for Insurance Companies

## Risk and Health

HT to Barry Ritholtz for sharing this video on how we (often fail to) understand risk in the context of health care policy. It includes a great example of why requiring child seats on planes is inefficient, and what diseases are real killers in the United States. (Approx. 6 min.)