Finance, risk and economic space

Victor Olkhov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents new approach to financial modeling and forecasting that is based on economic space notion. Economic space is defined as generalization of risk ratings and allows boost methods and description of financial processes. Risk ratings of economic agents are treated as coordinates of economic agents on economic space. Economic and financial variables of separate economic agents determine macroeconomic and financial variables as functions of time and coordinates on economic space. That permits describe financial relations similar to mathematical physics equations. Financial models can be described on discreet and continuous economic spaces with dimension determined by number of major risks measured simultaneously. To show advantages of economic space usage to financial modeling we present extension of Black-Scholes-Merton equation on n-dimensional economic space; develop macroeconomic models on economic space in a way similar to hydrodynamics and derive financial wave equations.

Keywords: risk ratings; economic space; option pricing; financial wave equations (search for similar items in EconPapers)
JEL-codes: C02 E17 G1 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Published in ACRN Oxford Journal of Finance and Risk Perspectives 1.5(2016): pp. 209-221

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:87172

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