Evaluating Financial Systems
The overall goal of this project is to use implement clearing payment vector formulas into MATLAB and use the resulting computer program to find the health of various financial systems. I then used this program to both compare different strategies of selling stock and compare different allocations of initial stock. In comparing clearing payment vectors of the same financial system, the most important factors to note are the overall health of the system and the health of each individual firm.
To find the health of an individual firm, we compare the clearing payment of that firm. More specifically, if the value of the clearing payment vector at point i of one strategy is greater than that of another strategy, the former strategy would make firm i healthier and lower its risk. Additionally, if the value of the clearing payment vector at point i of a certain strategy is lower than the value of the total obligation vector at point i, the firm would have defaulted in that strategy. If the values are equal, the firm would not have defaulted.
The simplest way to measure the overall health of the system is to take the sum of values of the clearing payment vector of each firm. If one strategy yields a sum value that is greater than another strategy, the former strategy would have a better impact on the health of the financial system and lower its risk. Also, it is important to note any changes in which firms default. Generally, if less firms default from a certain strategy, that strategy would make the financial system healthier.
The most important financial system which I have looked at is the case where each firm is given multiple stocks. Within this case, I am currently looking at how the different strategies of selling stock effect the health of the system. By determining the most beneficial strategies to the system, we can make assumptions about how these strategies would affect firms in real-world financial systems.
To find the health of an individual firm, we compare the clearing payment of that firm. More specifically, if the value of the clearing payment vector at point i of one strategy is greater than that of another strategy, the former strategy would make firm i healthier and lower its risk. Additionally, if the value of the clearing payment vector at point i of a certain strategy is lower than the value of the total obligation vector at point i, the firm would have defaulted in that strategy. If the values are equal, the firm would not have defaulted.
The simplest way to measure the overall health of the system is to take the sum of values of the clearing payment vector of each firm. If one strategy yields a sum value that is greater than another strategy, the former strategy would have a better impact on the health of the financial system and lower its risk. Also, it is important to note any changes in which firms default. Generally, if less firms default from a certain strategy, that strategy would make the financial system healthier.
The most important financial system which I have looked at is the case where each firm is given multiple stocks. Within this case, I am currently looking at how the different strategies of selling stock effect the health of the system. By determining the most beneficial strategies to the system, we can make assumptions about how these strategies would affect firms in real-world financial systems.