Lehman formula

Lehman formula is a formula developed by Lehman Brothers bank in order to calculate the commission on brokering services. The structure is a decreasing series from 5 to 1, which means that for the first million dollars in transaction commission is 5% and for the each next million it is 1 percentage point lower: 4% for the second, 3% for the third, 2% for the fourh and 1% for fifth and next.

If you think it's expensive, you're wrong. Today most investment bankers require higher commission, however the structure of series is similar, e.g. 10% for the first million and 2% for the fifth and next (10-8-6-4-2). Some say that's because of inflation, but let's think for a moment: inflation is about money, not percents.

The Lehman Brothers bank declared bankruptcy in 2008 on the beginning of the crisis due to large exposure on subprime market.

References

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