Deterministic risk modelling: Newtonian dynamics in capital flow

Anna Szczypińska, Edward W. Piotrowski and Marcin Makowski

Physica A: Statistical Mechanics and its Applications, 2025, vol. 665, issue C

Abstract: Risk is a universal concept that is applied in many scientific disciplines. We demonstrate the relationship between the risk associated with the dynamics of capital flows and a specific class of problems from classical mechanics, which rely solely on the deterministic nature of the constructed models. This approach differs from the currently dominant one, where risk is mainly associated with probabilistic methods of modelling Brownian motion. We point out the safest form of loan repayment while considering profit maximization. We derive formulas that allow us to calculate the value of capital at any discrete moments in time, given lower and upper interest rate bounds. We use matrix rates and Newton’s principles to analyse capital dynamics in both continuous and discrete systems. We illustrate the proposed theory with a practical example: a measure of the efficiency of buying and selling transactions.

Keywords: Market; Risk; Capital dynamics; Newton’s laws of motion; Profit intensity; Complex systems (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:665:y:2025:i:c:s0378437125001517

DOI: 10.1016/j.physa.2025.130499

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