In the 1990s, Quantitative Analysts Used Mathematical Formulas to Price

question 53

Multiple Choice

In the 1990s, quantitative analysts used mathematical formulas to price derivatives and predict the market. According to Ferguson, why didn't these formulas help them avoid the crisis of 2008?

• A) The formulas were overly complex and hard to use.
• B) Computers were not powerful enough in the 1990s.
• C) The markets are affected by human emotion, which is hard to calculate.
• D) The markets change over time, and the formulas stayed the same.
• E) Dishonest analysts used the formulas for their own benefit.

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Definitions:

Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

Average Total Cost

A firm’s total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.

Economies of Scale

Cost advantages that a business obtains due to expansion, leading to a reduction in the average cost per unit through increased production.

Diseconomies of Scale

The situation in which a business grows to a point where the costs per unit increase, opposed to saving costs, often due to managerial inefficiencies or complexity.