Sustainability of Ponzi scheme investment funds

Abstract

A mathematical model is used to describe the behavior of an investment fund that promises more return than it actually can deliver, also known as a Ponzi scheme. The model uses the following parameters: nominal interest rate, promised interest rate, investors’ withdrawal rate, forthcoming investors’ rate, initial deposit and capital in order to estimate the money available in the fund over time and to predict for the fund whether it is sustainable or will collapse after a while. Different examples of parameters are taken to illustrate several cases of the dynamics of the investment fund. In addition, intuitive understanding of the roles of parameters in the model is discussed.