Quiz # 1

Some practitioners think that financial markets follow the theory of punctuated equilibrium. “Punctuated equilibrium” is a concept borrowed from:


a) Solid State Physics;
b) Evolutionary Biology;
c) Geology;
d) Quantum Mechanics;



In 1900 Louis Bachelier in his doctoral dissertation in Math at Sorbonne proposed the following:


a) stock prices follow arithmetic brownian motion;
b) stock prices follow geometric brownian motion;
c) stock prices follow a random walk with jumps;
d) None of the above;



Jensen’s inequality states that:


(a) A convex function of an expectation is less than or equal to the expectation
          of the function;
(b) A convex function of an expectation is greater than the expectation of the
          function;
(c) The inverse function of a convex function is not necessarily convex;
(d) None of the above;



If ƒ'(x)  is the first mathematical derivative of the function ƒ(x)  with respect to  x  then the Inflexion point for the function ƒ(x)  around point  a  will satisfy the following condition:


a)  ƒ'(a) = 0
b) ƒ"(a)  or not defined;
c) ƒ'(a) = 0  and  ƒ"(a) < 0
d) ƒ'(a) < 0  and  ƒ"(a) > 0



The inverse function rule states that if . If there is a function will be:
a) 
b) 
c) 
d) 



Which one of the following economists developed detailed model of economic growth by showing how technology, as an exogenous variable, impacts the productivity of capital and causing the economy to be in dynamic equilibrium:


(a) Paul Samuelson
(b) John Hicks
(c) Robert Solow
(d) George Akerlof



Brainard’s principle which was assiduously followed by the policy makers of the Federal Reserve Bank in the U.S. for the past two decades states that:

(a) interest rates should be set by the Fed according to the consensus
          forecast of core Consumer Price Index (CPI) by the Fed Analysts;
(b) when confronted with increased risk and uncertainty in the economy the
          Fed should set interest rates in small incremental steps (up or down) and
          depending upon the results make further rate cuts or hikes;
(c) the Fed should follow an expansionary monetary policy in the face of
          heightened risk of deflation by expanding M1, the narrowest measure of
          money in rapid jumps;
(d) the Fed should cut or hike interest rates using a model which measures
          the impact of money supply on asset prices;



One of the following mathematical techniques is used extensively in solving constrained optimization problems in finance and economics (such as asset allocation modelling):


(a) Lebesgue integrals;
(b) Laplace transforms;
(c) Bessel functions
(d) Lagrangian multiplier



Pareto-Levy family of stable distributions is given by:
  
Where   then the above distribution will become:

(a) Laplace transform of the Normal (Gaussian) distribution;
(b) Fourier transform of the Normal (Gaussian) distribution;
(c) Fourier transform of the Gamma distribution;
(d) None of the above;



John Forbes Nash developed his theory of equilibrium (Nash equilibrium) using:


(a) von Nuemann’s minimax theorem;
(b) Kakutani’s fixed point theorem;
(c) Riemann mapping theorem;
(d) None of the above;

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