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Mathematical Research: Mathematical Economics and Finance

Description: Mathematical Economics and Finance Quiz
Number of Questions: 15
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Tags: mathematical economics finance optimization game theory
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In mathematical economics, the concept of utility refers to:

  1. The satisfaction derived from consuming goods and services.

  2. The total value of goods and services produced in an economy.

  3. The rate at which the price of a good or service changes over time.

  4. The amount of money an individual has to spend on goods and services.


Correct Option: A
Explanation:

Utility is a subjective measure of the satisfaction or well-being that an individual derives from consuming goods and services.

The efficient frontier in portfolio optimization is the set of portfolios that:

  1. Offer the highest expected return for a given level of risk.

  2. Offer the lowest risk for a given level of expected return.

  3. Maximize the Sharpe ratio.

  4. Minimize the tracking error.


Correct Option: A
Explanation:

The efficient frontier is the set of portfolios that offer the highest expected return for a given level of risk, or the lowest risk for a given level of expected return.

The Black-Scholes model is used to:

  1. Price options.

  2. Value stocks.

  3. Forecast interest rates.

  4. Calculate the cost of capital.


Correct Option: A
Explanation:

The Black-Scholes model is a mathematical model used to price options, which are financial instruments that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date.

The Nash equilibrium in game theory is a situation in which:

  1. No player can improve their payoff by changing their strategy, given the strategies of the other players.

  2. All players have the same payoff.

  3. The total payoff of all players is maximized.

  4. The game is fair.


Correct Option: A
Explanation:

The Nash equilibrium is a situation in which no player can improve their payoff by changing their strategy, given the strategies of the other players.

The capital asset pricing model (CAPM) is used to:

  1. Determine the required rate of return on an investment.

  2. Calculate the beta of a stock.

  3. Measure the risk of a portfolio.

  4. All of the above.


Correct Option: D
Explanation:

The CAPM is used to determine the required rate of return on an investment, calculate the beta of a stock, and measure the risk of a portfolio.

The Modigliani-Miller theorem states that:

  1. The value of a firm is independent of its capital structure.

  2. The cost of capital is the same for all firms in the same industry.

  3. The optimal capital structure is the one that maximizes the firm's value.

  4. The debt-to-equity ratio is irrelevant to the firm's value.


Correct Option: A
Explanation:

The Modigliani-Miller theorem states that the value of a firm is independent of its capital structure, meaning that the way a firm finances its assets does not affect its value.

The rational expectations hypothesis states that:

  1. Individuals and firms form expectations about the future based on all available information.

  2. Expectations are always correct.

  3. Expectations are always unbiased.

  4. Expectations are always rational.


Correct Option: A
Explanation:

The rational expectations hypothesis states that individuals and firms form expectations about the future based on all available information, and that these expectations are unbiased and efficient.

The efficient market hypothesis (EMH) states that:

  1. All available information is reflected in the prices of securities.

  2. It is impossible to beat the market.

  3. Active management is always unsuccessful.

  4. All of the above.


Correct Option: A
Explanation:

The EMH states that all available information is reflected in the prices of securities, meaning that it is impossible to beat the market by consistently buying and selling securities.

The arbitrage pricing theory (APT) is a model of:

  1. Asset pricing.

  2. Portfolio optimization.

  3. Risk management.

  4. All of the above.


Correct Option: A
Explanation:

The APT is a model of asset pricing that attempts to explain the relationship between the risk and return of an asset.

The Kelly criterion is a formula for:

  1. Optimal betting in gambling.

  2. Optimal investment in financial markets.

  3. Optimal resource allocation.

  4. All of the above.


Correct Option: A
Explanation:

The Kelly criterion is a formula for optimal betting in gambling, which can be applied to optimal investment in financial markets and optimal resource allocation.

The Monte Carlo simulation is a method for:

  1. Generating random numbers.

  2. Simulating complex systems.

  3. Solving optimization problems.

  4. All of the above.


Correct Option: B
Explanation:

The Monte Carlo simulation is a method for simulating complex systems by generating random numbers and using them to calculate the outcomes of various scenarios.

The finite difference method is a numerical method for:

  1. Solving partial differential equations.

  2. Solving ordinary differential equations.

  3. Solving algebraic equations.

  4. All of the above.


Correct Option: A
Explanation:

The finite difference method is a numerical method for solving partial differential equations by approximating the derivatives of the unknown function with finite differences.

The finite element method is a numerical method for:

  1. Solving partial differential equations.

  2. Solving ordinary differential equations.

  3. Solving algebraic equations.

  4. All of the above.


Correct Option: A
Explanation:

The finite element method is a numerical method for solving partial differential equations by dividing the domain of the equation into small elements and approximating the solution within each element.

The boundary element method is a numerical method for:

  1. Solving partial differential equations.

  2. Solving ordinary differential equations.

  3. Solving algebraic equations.

  4. All of the above.


Correct Option: A
Explanation:

The boundary element method is a numerical method for solving partial differential equations by reducing them to boundary integral equations.

The method of characteristics is a numerical method for:

  1. Solving partial differential equations.

  2. Solving ordinary differential equations.

  3. Solving algebraic equations.

  4. All of the above.


Correct Option: A
Explanation:

The method of characteristics is a numerical method for solving partial differential equations by following the characteristics of the equation.

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