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The basic RBC model predicts that given a temporary shock, output, consumption, investment,t, and labor, all rise above their long-term trends and formative deviation. Furthermore, since more investment means more capital is available, a short-lived shock may impact the future.
On the one hand, [1] current capital structure appears strongly related to historical market values, suggesting that "capital structure is the cumulative outcome of past attempts to time the equity market". On the other, studies [2] show that the effect of market timing
examines a model of climate change that is similar to the one used in the Stern Review but with a 3 percent social discount rate that slowly declines to 1 percent in 300 years rather than the 0.1 percent discount rate used in the Stern Review. In his model, the welfare of future generations is given less weight than the current generation's ...
The Lucas critique suggests that if we want to predict the effect of a policy experiment, we should model the "deep parameters" (relating to preferences, technology, and resource constraints) that are assumed to govern individual behavior: so-called "microfoundations."
This theory is often set up as a competitor theory to the pecking order theory of capital structure. [2] A review of the trade-off theory and its supporting evidence is provided by Ai, Frank, and Sanati. [3] An important purpose of the theory is to explain the fact that corporations usually are financed partly with debt and partly with equity.
One approach to affine term structure modeling is to enforce an arbitrage-free condition on the proposed model. In a series of papers, [2] [3] [4] a proposed dynamic yield curve model was developed using an arbitrage-free version of the famous Nelson-Siegel model, [5] which the authors label AFNS. To derive the AFNS model, the authors make ...
Economic capital is a function of market risk, credit risk, and operational risk, and is often calculated by VaR. This use of capital based on risk improves the capital allocation across different functional areas of banks, insurance companies, or any business in which capital is placed at risk for an expected return above the risk-free rate.
The First Chicago method or venture capital method is a business valuation approach used by venture capital and private equity investors that combines elements of both a multiples-based valuation and a discounted cash flow (DCF) valuation approach.