Concepts

How specific financial mechanisms work inside the EconIAC framework.

These pages sit between the abstract mathematical tools explained in Why does Econiac use abstract mathematics? and the code-first Tutorials. Each page takes one financial mechanism and shows how the framework changes what can be said about it.

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Foundational concepts

These three ideas underpin everything else in EconIAC. Start here.

Concept	The core claim	Read
Rationality is temperature	Replacing argmax with softmax (β parameter) turns any economic model differentiable and calibratable. At β→∞ you recover the classical model exactly.	Rationality is temperature
The three levels of risk	Financial risk has three structural levels — bilateral (H⁰), triangular (H¹), systemic (H²) — and existing tools only address the first two. Options exist because H¹ ≠ 0. The 2008 crisis was H².	(coming soon)
The Pentagon identity	The boundary condition \(\delta^2 \circ \delta^1 = 0\) that makes H² definable at all. A single pricing model can never violate it — only multiple independently-priced sources can. The 2008 correlation desk failure was a Pentagon identity failure.	The Pentagon identity
Clearing and netting	Bilateral netting removes edges; CCP novation fills triangles; H² obstructions require a government-level instrument. The Eisenberg-Noe model is an H⁰ fixed-point computation — and what that means for what it can and cannot detect.	Clearing, netting, and the topology of obligation

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Financial mechanisms

Mechanism	What the framework adds	Read
Covered interest parity	CIP holds iff the FX connection is flat (H¹ = 0). Post-2008 persistent deviations are a non-trivial H¹ class — a topological obstruction whose floor is set by regulatory capital costs. Central bank swap lines are topological surgery.	Covered interest parity as an H¹ condition