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Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics.Often, these applied methods are beyond simple geometry, and may include differential and integral calculus, difference and differential equations, matrix algebra, mathematical programming, or other computational methods.
One of the widely used types of impossibility proof is proof by contradiction.In this type of proof, it is shown that if a proposition, such as a solution to a particular class of equations, is assumed to hold, then via deduction two mutually contradictory things can be shown to hold, such as a number being both even and odd or both negative and positive.
A call option exchanges cash for an asset at expiry, while an asset-or-nothing call just yields the asset (with no cash in exchange) and a cash-or-nothing call just yields cash (with no asset in exchange). The Black–Scholes formula is a difference of two terms, and these two terms are equal to the values of the binary call options.
In mathematical economics, the Arrow–Debreu model is a theoretical general equilibrium model. It posits that under certain economic assumptions (convex preferences, perfect competition, and demand independence), there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy.
Econometrics is an application of statistical methods to economic data in order to give empirical content to economic relationships. [1] More precisely, it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference."
In a discrete (i.e. finite state) market, the following hold: [2] The First Fundamental Theorem of Asset Pricing: A discrete market on a discrete probability space (,,) is arbitrage-free if, and only if, there exists at least one risk neutral probability measure that is equivalent to the original probability measure, P.
In econometrics, the equations of a structural form model are estimated in their theoretically given form, while an alternative approach to estimation is to first solve the theoretical equations for the endogenous variables to obtain reduced form equations, and then to estimate the reduced form equations.
Start from the equation for the marginal product: = (, +) (,) To demonstrate diminishing returns, two conditions are satisfied; marginal product is positive, and marginal product is decreasing. Elasticity , a function of input and output, ϵ = I n O u t ⋅ δ O u t δ I n {\displaystyle \epsilon ={In \over Out}\cdot {\delta Out \over \delta In ...