ECON 4020-001 - Intermed Macroecon Essay Example | Topics and Well Written Essays - 500 words

ECON 4020-001 - Intermed Macroecon - Essay Example Davidson suggests that US increased the national debt during wars and recessionary periods because during those times only spender is government. The spending by the government therefore stimulates the necessary domestic demand which creates more jobs and increases the consumption. He provides evidence of how large deficits by the government during war and recessionary times actually were followed by periods of economic prosperity as well as job creation. Era after World War II was an era which was economically more prosperous than the times before war and one of the most important reasons for this was the government spending during war times by the US government and resulting large deficits. Davidson therefore suggests that actual task of fiscal policy is to act as a balancing wheel to generate sufficient aggregate demand which can stimulate entrepreneurs to create new jobs and deter from imposing or raising taxes to reduce the fiscal deficit and remove the role of government from the economy. Robert J Barrow’s article â€Å"Robin Hood Cant Lead Us Out of the Debt Hole: Obamas obsession with higher tax rates on the rich is not helpful† however focuses upon the argument of raising marginal taxes for rich in America to finance the fiscal deficit of the country. Barrow suggests that the current government in US may be missing the point that by increasing the government expenditure, multiplier effect can have a positive impact on the economy. He presents the recent historical analysis of the financial crisis and how the government actually allowed Lehman Brothers to fail to actually initiate a systematic failure of important institutions. Barrow therefore argues that rather than taxing the rich, the overall composition of the federal government needs to be changed. Government shall increase the maximum age limit for the entitlement of the social security as well as further rationalize the federal government

Modern pricing models Essay Example | Topics and Well Written Essays - 250 words - 1

Modern pricing models - Essay Example Some of the shortcomings experienced with the Black-Scholes model were strike-price bias and return skewness. Consequently, the development of the Heston model came in as the best alternative tool for the purposes of advanced investments (Gilli, Maringer & Schumann 2011, p.257). As any other stochastic volatility model, the Heston model utilizes statistical methods when making calculations or forecasts of the various pricing options in consideration. As such, it also bases on the assumption that the underlying security or trading option has an arbitrary volatility. Therefore, the Heston model falls among the various different models of stochastic volatility such as the GARCH model, the Chen model, as well as the SABR model. Consequently, the Heston Model also falls under the standard smile model category, with â€Å"smile† in this concept referring to the volatility smile. A volatility smile is a graphical representation of various options that have identical expiration date expressing an increasing volatility. This increase in volatility arises often arises when the options become more out of the money or in the money. The concave shape generated by the graph is what gives rise to the name, the smiles model, as it appears like a smile (Wang 2007, p. 3). The Heston Model applies mathematical calculations in describing the process of evolution in volatility that an underlying asset undergoes under the stochastic volatility options. As such, just as other statistical models mentioned above, the Heston Model equally has a number of assumptions, such as the volatility of an asset not being constant, or deterministic, but rather following a random process. Some the of the basic assumptions of the Heston Model is that the stochastic process determines the asset price, St In addition, forms part of the Wiener Process as experienced under the GBM (Geometric Brownian Motion) also considered