• Ponzi Financial Dynamics

    Ponzi Financial Dynamics

    We use a first order differential linear equation to describe the dynamics of an investment scheme that promises more than it can deliver (a Ponzi scheme). The model is based on (i) a promised, unrealistic, rate of return, (ii) the rate at which new investments are gathered, and (iii) the withdrawal rate. We establish the parameters that lead to the scheme’s collapse.

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    Carlos A. Abadi

    Carlos is a 30-year veteran international investment banker who pioneered a number of financial products, such as the trading and swapping of emerging markets sovereign loans in the wake of the 1982 Mexican debt crisis, the trading market for derivatives on emerging markets bonds and loans, the first non-dilutive CET1 transaction compliant with Basel III rules, and the first Chapter 11 filing for a Latin American issuer.

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