Deterministic definition of the capital risk

TL;DR

This paper introduces a deterministic framework for capital risk analysis inspired by classical mechanics, proposing new laws for modeling capital evolution and credit repayment strategies.

Contribution

It develops a novel deterministic approach to capital risk using laws analogous to Newton's laws, extending to multidimensional models with matrix rates of return.

Findings

Most secure credit repayment form identified

Framework allows analysis of complex capital evolution

Applicable to continuous and discrete time models

Abstract

In this paper we propose a look at the capital risk problem inspired by deterministic, known from classical mechanics, problem of juggling. We propose capital equivalents to the Newton's laws of motion and on this basis we determine the most secure form of credit repayment with regard to maximisation of profit. Then we extend the Newton's laws to models in linear spaces of arbitrary dimension with the help of matrix rates of return. The matrix rates describe the evolution of multidimensional capital and they are sensitive to both quantitative changes of individual elements and flows between them. This allows us for simultaneous analysis of evolution of complex capital in both continuous and discrete time models.