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A Model Of Formation Of Asset Beubbles

Author

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  • DEHNAD, KOSROW

    (COLUMBIA UNIVERSITY/SAMBA FINANCIAL GROUP)

Abstract

A non-stationary time series is derived to describe the process of the formation of asset bubbles. The model is based on leverage and easy credit: the root cause of all financial bubbles. The discrete version of the model is used to present the intuition behind the approach and discuss its policy implications. A simple numerical example that models housing bubbles is used to illustrate the ease of implementing such models in practice using a spreadsheet. The final section presents the continuous time version of the model.

Suggested Citation

  • Dehnad, Kosrow, 2010. "A Model Of Formation Of Asset Beubbles," Journal of Financial Transformation, Capco Institute, vol. 29, pages 95-98.
    • Handle: RePEc:ris:jofitr:1423
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    More about this item

    Keywords

    Asset Bubbles; Housing Bubbles; Bursting of Asset Bubbles; Leverage; Credit; Cost of Fund; Volatility Non Stationary; Policy Implication; Investment; Return;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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