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The mathematics of Ponzi schemes

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Author Info
Artzrouni , Marc

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Abstract

A first order linear differential equation is used to describe the dynamics of an investment fund that promises more than it can deliver, also known as a Ponzi scheme. The model is based on a promised, unrealistic interest rate; on the actual, realized nominal interest rate; on the rate at which new deposits are accumulated and on the withdrawal rate. Conditions on these parameters are given for the fund to be solvent or to collapse. The model is fitted to data available on Charles Ponzi's 1920 eponymous scheme and illustrated with a philanthropic version of the scheme.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14420.

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Date of creation: 02 Apr 2009
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Handle: RePEc:pra:mprapa:14420

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Related research
Keywords: Ponzi scheme; differential equation; market; bond;

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G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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  1. Bhattacharya, Utpal, 2003. "The optimal design of Ponzi schemes in finite economies," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 2-24, January. [Downloadable!] (restricted)
  2. Forslid, Rikard, 1998. "External Debt and Ponzi-Games in a Small Open Economy with Endogenous Growth," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 341-349, April. [Downloadable!] (restricted)
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This page was last updated on 2009-12-4.

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