POSSIBLE CAUSE OF A NEW FINANCIAL SHOCK WAVE

23 Oct

I think that a terrorist attack, similar to 9/11, will cause another financial     shock wave. The 9/11 attack had big economic effects that instigated a         global drop in the stock markets. Furthermore, there were billions of             dollars caused in insurance losses. For these reasons, a similar occurrence will certainly have equivalent consequences at least. Nevertheless, I argue that such an event will cause further losses and more extravagant effects. This is due to the fact that after 9/11, governments became very precautious about possible terrorism, and many resources were put towards security. As a result, people think that they are safer and that a new series of attacks would be very unlikely (an adverse selection event). In addition to this, the dead of the former leader of Al-Qaeda has surely lead people to feel safer, so another attack will definitely be very surprising.  In the end, there would be more panic, which will further cause fear within the markets and thus, spreading it throughout the world and many other economic sectors. This could cause a new financial shock wave.

Question of the week: Is it possible to find the optimization values using eigenvalues from matrices? If so, how would it be possible?

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One Response to “POSSIBLE CAUSE OF A NEW FINANCIAL SHOCK WAVE”

  1. shannon7774 October 31, 2011 at 11:34 AM #

    Firstly, your example is pretty scary. But well thought out.

    For your question, definitely! Whenever you have a matrix, there must be some use for the eigenvalues and eigenvectors.

    When we have 2 unknowns and 1 constraint, we showed how to reduce one of the variables to get a standard optimization problem for a single variable like for calculus.

    When you have 3 unknowns and 2 constraints you can do the same thing. But for any more variables than that, the best you can do is to reduce the number of variables from n to n-2 by using the constraint equations. That still leaves an (n-2)-times-(n-2) matrix in the new variables. Then you would want to minimize that which you would do by finding the smallest eigenvalue.

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