Ch. 13 Difference Equations 1 First-Order Difference Equations Suppose we are given a dynamic equation relating the value y takes on at date t to another variables Wt and to the value y took in the previous period: where o is a constant. Equation(1)is a linear first-order difference equation a difference equation is an expression relating a variable yt to its previous values
Endowments and Allocations Consider first the case of a pure exchange economy. (One with no production). Suppose there are two consumers, A and B, in a two good economy. A starts with an endowment of ωA =
Company a buys default protection from b to protect against default on a reference bond issued by the reference entity, C A makes periodic payments to In the event of a default by c A has the right to sell the reference bond to B for its face value