Who you in the next ten years ago * Professor of Asian currency crisis, Nouriel Roubini, should have recognized this crisis, this book similarities. Roubini recently spoke of his opinion: "The United States will have to live in a surplus situation too long." Consumer spending exceeded its income and expenditure over income of the country is running a huge current account deficits. Now we have to cut expenditures and increase savings. TheThe problem is that the higher savings is a positive mid-term, but in the short term consumers to reduce consumption of the economic recession made things worse. "
This is the paradox of thrift. However, we need to preserve more than one country, we need more resources, on the part of the marketing channels have a higher productivity. If you have too many financial engineers, not so many computer scientists, you have a question ...... I think this country needs more people who go toEntrepreneurs, produce more people in these departments will lead to long-term economic growth of more people. If the best talent in the country, are Wall Street to go, there is a human capital distribution of some activities, including excessive and inefficient prejudice. "However, the Nobel Prize in Economics laureate Robert Merton of Harvard Business School have a different view:
We need more financial engineering, not less, risk and innovation,Including derivatives, are not gone, we need to senior management, board and supervision of financial institutions that they understand. "Who is the financial engineers, in the end what you say?" I have received a bachelor's degree in financial engineering in 2002, until today, no one of my masters know this is hell. OK, financial engineers tend to be "rocket scientists" (literal translation), to strengthen the big banks and multinational corporations employed personsComplicated mathematical model, intended to predict the possibility of risk events related to the instrument rating, has always been very difficult to price, the creation of synthetic securities hedge risks (and sometimes even guess) on.
As a leveraged buyout expert, said: "Ted Stolberg's magazine once, is" financial engineering, like building a bridge. You can also create you can, as long as they do not collapse, if the increase in heavy-duty trucks, to make it more fun, you canThe additional traffic lanes, if you are experiencing more traffic to it. When everything is completed, should be a beautiful thing, such as the San Francisco Golden Gate "(Walsh, 1993, p. 296). Of the" quants ", because they are affectionately called, is usually caused by poor performance on Wall Street pay for the work of the temptation in the London, New York, Chicago and California high-paying jobs. senior management personnel, as their investors, these quantum many times to remind you that everything will be all right now because the intelligence they rentSettlement. Unfortunately, there are two major issues of financial engineering, post there. First of all, finance is the relationship between people and their final each other.
Almost no similarities between the real money in mathematics and physics logical sequence. With the basic assumptions of the beginning of the financial sector in most models, "Homo sapiens Economus," assuming people are rational being. This has proved an erroneous assumption, due to recent studiesCognitive neuroscience. Secondly, the financial model for determining the output, at a higher level management staff misunderstandings. Just as Alfred Greco on Dembski said: "The map is not the territory." Is that too many decisions on the basis of these models for its too much weight. Managers seem eager to acknowledge their success and deny their shortcomings, but it is after all human nature. Financial model: The stock market rational and irrational? "It's more than a metaphorDescribed as the machinery of the price system or telecommunications system, see the individual manufacturers, only movement in the number of a few pointers on how engineers can choose to see, to stop their activities will change hands from them do not know more than the share price reflected. "- Hayek's quite attractive concept and experience, which accounts for its long-standing theory of efficient markets.
In aIn short, generally considered to be an efficient stock market, the market equilibrium point, the stock fully reflects all the "essential" to the current value of the collateral of the relevant information (cut, Benjamin Graham, as the company said, fundamentalism, discourse of security analysis by David L Dodd, was changed shortly before his death: "I am not a detailed security analysis technology, an advocate for finding a reference to higher-valuePossible ... I doubt whether there is sufficient to prove superior to a wide range of efforts to generate the cost of your choice ... I am against the "efficient market" thinking school party ... "Survivor [Malkiel, 1996, p. 191 pages]) despite the epidemic., more efficient capital market theory, some very legitimate criticism. There is a theory, realistic model, rather than "real" seems to abnormal does not reflect the reality and the theory of efficient capital market theory is notException.
Ray the ball in his article said: "Stock Market Efficiency Theory: Achievements and limitations (Ball, 1994, p. 40) presents a balanced point of view, all of the above, and highlights some interesting differences: 1) by the French research shows that prices over-react to new information rolls, and then, after a correction, so that counter-cyclical investor profit-taking. 2) price volatility due to "extraordinary delusions and the madness of the masses. "3) inadequate response to the price ofQuarterly performance reports, which in itself seems to be abnormal over-reaction to the trend of prices of new information. Covers an area of 4) by the French Fama and a recent study that there is no history between the beta and the historical relationship between returns, I believe the balance too much lead in CAPM model has been to create a strong efficiency is due to a large number of empirical data failure. Yes (ball not included in the article, but telling Malkiel's A Random Walk Down Wall StreetFama and French history, but also pointed out that the purchase of one has been completed, in the past two years, the severe stock, usually above, in the next two years (Malkiel, p. 198) the average return for you, so contrary to the profit again. ) 5) on the stock or small companies, the data seasonal patterns, such as "January effect", the abnormal stock price in January or the "weekend effect the first day of high" was found on average equityIs a negative correlation closed at last Friday's closing price Monday.
Abnormal absence of the ball article: 1 There is evidence that beyond the company's low prices to those with high P / earnings ratio for the elderly. 2. Evidence that the sale of shares, with a low ratio of book value usually provide higher returns. 3. Evidence suggests that high-dividend stocks first rule to provide higher returns (Malkiel, pp. 204-207). If the ball is different from most other articlesIn the trial, and efficient capital market theory, the suffering of the summary under the heading of "efficiency" as the stock market model "wrong" one (the ball 41 - 46), who introduced the general neglect in the theoretical and empirical research in the processing and access to information stock market efficiency. This may be overlooked, such as "small-firm effect," the tendency to not normal, because small stocks offer higher returns. HeIn addition, the efficient market theory, the key assumptions, the homogeneity of investors', and proposed a new research project needs. The ball that, in literary theory of efficient markets the role of transaction costs "basically has not been resolved, but the actual impact of market price negotiation mechanism, also known as the" market micro-structure of the known effects of well-known.
His defense, Robert Schiller's paper the efficient market theory (which is the historical difference between stock priceSignificant fluctuations in sex ratio may be justified by the historical variance of the actual dividend Shearer market continues to mature the use of) the expected nominal rate of return. As the CAPM model assumes a constant risk-free interest rate and a constant market risk premium, which is impossible "appropriate" amount in determining the market index. To defend himself when the ball for Shearer, and other scientists believe that market behavior, efficiency, return does not mean that the stockSome market irrationality. CAPM is that it does not have a return period of relatively high rejection rate of return after a period of low and trends of the claim. In fact, this circulation pattern may be for political or economic conditions change and the company's investors, a rational response, leading to investor demand for stocks.
The ball and then approved more behaviorists Shearer, and his play space at the end ask: "changes in behavior of capitalThe answer? "He quickly replied:" I do not believe "(Ball, p. 47). I want to question another way, they said," is a behavioral change of funds to generate useful answers? "Would be my answer:" Yes. Whether rational behavior of investors, that is, whether investors expected utility maximization is an efficient market theory, an important assumption, if it is not true ", which may explain why the abnormal phenomenon. Allias work in prospect theory , Kahneman and Tversky to provideImportant evidence suggests that countries have adopted the standard expected utility maximization hypothesis most financial economists, can not provide accurate representations of human behavior (prospect theory, rather than maximizing the "cause" of the weighting and the people, through the real probability function to determine on behalf of a very low probability of zero weight, and weight) is a high likelihood. Although such evidence can not be condemned, it is worryingTo put it mildly (Shiller, 1997).
Interestingly, the omission of the fitness ball in his article on the stock market efficiency and financial economists, the current practice of the theory is divided into three categories, from the overwhelming majority of the orthodox as follows: a weak form, said the price change history is not useful for The information, so investors have been better than buying and holding a portfolio management theory. 2. Semi-strong form asserts that there is no ready-made publicInformation security experts to help select "undervalued" securities. 3. In the form of a strong, said all are aware, even in the company to see is reflected in stock prices. Statistical data gives reason to believe the weak and semi-strong form and strong form of tax rebate to sources within the company to earn excess profits of the inside information to trade. In order to support the weak and semi-strong form, the ball of the results and Brown's mid-60 study (Ball, p. 35)Like the stock market's actual response to reported annual income shown that the market is expected to see an annual income of 80% of new information, pending the outcome of the actual announcement.
In other words, investors largely deprived of a future opportunity to benefit from new information, because the results have been published dealing with the annual report the information in the share price. In my opinion, investors, and "quants" like to do is toDo not swallow the concept as a whole, all corners and edges, but carefully consider all of the different methods of evidence. In, scientific experiments in the photon feel at home, without any success and failure of the visit, only the results or outcomes. All the data points to create, it will tell you when your assumptions are correct. Unfortunately, in the capital market, if it is an "experiment" with sufficient clout, you could bankrupt nations, and now even the whole world. In the capital markets, the realThe risk of the pilot, such as this may lead to not eat people. What is the risk and financial engineering has actually come from? Well, we can say that intuitively seems to risks and uncertainties are correlated. In order to more security, we can be a particular result, it is less risk. However, in this fast-changing world like ours, we can barely (often inaccurate), in 5-day weather forecast, and now can be expected that financial managers, farmers, or any interested party,Forecasts, that is, in China, a few weeks, months or even years, tea prices?
This is the asymmetry of financial instruments, a "beautiful natural selection is called:" A call option is a basic right to purchase a certain quantity, by a number of specific exercise price paid on or before the expiration date. A put option is specified exercise price before the sale or maturity of the right about a number of underlying assets "(Figlewski andSilver, 1990, p. 4). Potential losses of investors is limited premium income, while the potential profit is unlimited. Thus, although it may not possible to predict the future price of tea in China, you can create a floor amount of loss shall not be set up on the profits seem to be harvested. Option belongs to a class of financial instruments known as derivatives, appropriately named because they produce something else of value. Options, for example, a value ofThe underlying assets. Other derivatives, including interest rate and exchange rate futures and swaps, whose value on the level of interest rate and exchange rate policy depends on (some of which currency payment obligations between the parties, because they may be more willing to pay someone else's stream), commodity futures, its value is determined by commodity prices and forward contracts for future contracts, in addition to the actual delivery of the goods under the contract is similar to a specified future date. However, we canOur instruments to minimize exposure to risk?
"Financial engineering is the use of financial instruments, financial restructuring of existing more desirable features to a configuration file" (Galitz, 1995, p. 5). In other words, it is the province's financial engineering design "integrated" securities to achieve the desired risk-reward successful leadership results. Adopting a combination of options, futures, swaps, etc., and the creation of new securities to reduce unforeseen risks. Cash flow based on the assumptionBetween the lines, security and integrated portfolio are equal, then any difference between the two current market value is an arbitrage opportunity. Arbitrage trade sale, the price of a person to buy things, but essentially the same at a higher price, so that risk-free profit (in an efficient market should be so few opportunities, and when the wily investment who note that it has the advantage of the process, the car is the price for theirBuy and sell things below the price).
Financial engineering of a simple example, the actual work in his article the use of financial engineering algorithm in 1999 (Fowler, p. 534) Donald J Smith, simple arithmetic and algebra, to show the various combinations of security relations, () synthetic securities, financial engineers to create this unique risk-reward trade-off. His basic interpretation of the formula is as follows, A + B 2 C, where A + BIncluding synthetic products in C + was marked by the position of security is a long-term or loan posture - the signing of a position or holding short-term loan using the above arithmetic, Smith is the structure of this relationship synthetic securitization note interest rate swaps Interest rate swaps = + + determination of unlimited fixed-rate bonds - Floating Rate Note, in order to advance the majority of coupon bonds, hence the name fixed-income securities, but many problems still exist couponsPeriodically reset and proliferation, therefore, they are called floating-rate bonds.
Collar collar + = + CAP - flat "hat" and "floor" is the option contract is to ensure the highest [cap], at least [stock] rate, which can be realized. Upper and lower limits, mainly loss of interest, covering the rise in interest rates above or below the prescribed level in order to guarantee insurance. Maximum Mini Mini largest floating + = + a typical floating-rate bonds, floating rate note --The first inverse floating-rate bonds - inverse floating-rate bonds = - 2 + unlimited fixed-rate bonds, floating-rate bonds, the first inverse floating-rate bonds to attract investors who are optimistic about the expected bond prices and low interest rates. It is certainly improper use of synthetic Robert grapefruit and an end to Orange County in California, bankruptcy established at the Federal Reserve to raise interest rates significantly in 1994. The cost of this ignorance, Orange County ended in 1994, 1.7 billion U.S. dollars U.S. dollars Bar! Participation Agreement +Participation agreement = + first - floor, this simple arithmetic formula for fluctuations in, for those who are a financial complexity of the project is easy to understand look of great significance.
However, financial engineers have to be careful of the double-edged sword of derivative financial instruments. If you can have incalculable value derivatives to hedge to protect against the risk, if used for speculation, would incur unnecessary risk. In addition, arrogant, can be devastating and sometimes payments mayIs too complex to fully understand. Unintended consequences may be a whore (see credit default swaps) of the United States = ancient government, financial engineers "who blessed the young, for they shall inherit the national debt," Herbert Hoover in the most complex systems we a look at financial engineering all the time, with the U.S. Treasury and the Federal Reserve System relationship. U.S. Federal Reserve is a private holding company. In other words, popularSentence is: "The Federal Reserve has been called the" Bund ", such as Federal Express. In the largest of the 17 Federal Reserve Bank is the world's largest bank. In the recording, the United States in the last century has been one of deficit and debt.
Simply put, there is a deficit, if you spend more than you are. Whenever the government has invested more than it must be a debt instrument or IOU, usually a cost of U.S. government bonds would be. Federal authoritiesThe Reserve Bank of Qatar to buy these bonds (notes literally created a thin layer of air) of the commitment, the Federal Reserve government zurücküberweisen and principal fixed interest rate. In return for such payments of interest, the U.S. Federal Reserve has created a real sense of the word money (mainly electronic and air completely out) through manipulation of the general ledger. However, most people do not know, the best way to generate revenue to the state treasury to pay its debtsU.S. Federal Reserve Board in the form of taxes. Simply put, our tax money directly to bankers. A sobering fact is that to get a idea of how much the U.S. owes the bondholders (ie, Federal Reserve Bank of Qatar), only the national debt at a glance. It rose to 11 trillion U.S. dollars (I remember one trillion 100 billion euros, 100 million and 1 billion 10 million U.S. dollars.
With a pair of 305.36777 million the United States, the estimated population, which means thatUnited Nations, the citizens of each country, the share of public debt reached almost 40K of the letter. The tough part is that if the debt is growing, the ratio of average real income growth by a big margin, then we should be on the Government to do so, the tax revenue is not enough to expect to pay interest on the debt? Then, once the money (Again, this is to build something out of nothing) back to the government's economic system, and found its way toIn the private banks. Once you have started some of the reserve by the actual inflation for the Magic. This is all documented in the Federal Republic of Reserve's own handbook, entitled "Modern Money Mechanics." In short, because they only received the actual reserves on hand a small part (in their book is not the correct state, the whole U.S. dollars) expansion of the monetary and banking operational risk is always there.
Only three operations, the Government can take the basic courses;Abandon hyperinflate or liquidation. I favor the government liquidation of assets (non-governmental important properties, such as FDA, FCC, or the IRS) on the rejection or hyper-inflation, because the Government's assets in liquidation, is the most reliable way to the end of big government, because we know that. Retirement will hurt the economy, the interest rates and bond prices rocket will fall, the risk too great. Hyperinflation will be devalued its currency, and all the poverty Impact. In conclusion all this let me return to lap, to Professor Nouriel Roubini's quote again: "The U.S. has lived too long in the surplus." Consumer spending more than their income, while the state's money than their large operating income The current account deficit. Now we have to cut expenditures and increase savings. The problem is that the higher savings is a positive mid-term, but in the short term reduction in consumption, making consumption of"Economic recession intensified.
This is the paradox of thrift. However, we need to preserve more than one country, we need more resources, on the part of the marketing channels have a higher productivity. If you have too many financial engineers, not so many computer scientists, you have a question ...... I think this country needs more people who will be entrepreneurs, produce more people, in these sector, to lead more people to long-term economic生长. If the best talent in the country, are Wall Street to go, there is a human capital distribution of some activities, including excessive and inefficient prejudice. "I totally agree that the solution lies in entrepreneurship. However, the rate of the term" excess bookended ", combined with our country's economic crisis. This leads to who are the real architects of this remaining issue is the financial engineers, alone or inFederal Reserve and the U.S. Treasury, as well as an accomplice?
Reference to Hayek, FA (September 1948). In the society of knowledge.
American Economic Review, 35, No. 4, in Malkiel, BG (1996).
A Random Walk Down Wall Street. New York, NY ball, River (1994).
Market efficiency theory: advantages and limitations. Department of Health Week, small (eds.),
The new corporate finance, in theory in line with practice (paragraphs 35 to 48). Boston, Massachusetts. Shearer, a RJ(1997). Human behavior and the efficiency of the financial system. [Online]. Browse: [http://www.econ.yale.edu/ ~ Schiller / handbook.html].
Walsh, D. (1 17, 1988). After the accident (financial engineering). Economic principles.
New York, NY Figlewski, S. and silver, books (1990).
Financial option theory: Practice. New York, New York City, Gerlitz, the Legislative Council (1995).
Financial Engineering: Tools and financial risk management techniques. Burr Ridge, Illinois. Smith, D.J. (1999 years). Financial engineering algorithm. Department of Health Week, a small (ed.), The new corporate finance theory, in line with the actual situation (No. 535-543). Boston, Massachusetts. (June 20, 1999).
* Against the yen lessons (as I wrote the Golden Gate University's student newspaper, you are a substitute, "Japan" and "United States", it may also exist) as low as 10 years ago on the assumption that in 1998, the U.S. unemployment rate and growth rate at any time are more attractive than in Japan. SuchThinking has been proved to be false, and stabbed all over the world feel. What kind of impact, if any, there is one other problems around the world? Well, the Japanese economy fell to the tip of the Asian currency crisis, Asian tigers is the latest Golden Gate University in San Francisco, some students worried about. International students are receiving the funds provided by Japan, a direct impact. Erina Ishikawa (Master of Business Administration, entrepreneurship) and the East a transport (MS,Computer information systems), have felt the negative exchange, the impact of a downward trend in the yen exchange rate.
"When I (in the United States) 10 years ago, a lot of things cheaper, we are in Japan, now the reverse is true, said:" The Cloud. Forecasts Japan's economic problems, and pointed out that the high interest rates in the United States, Misa Aoki (master's, public relations) to change their yen, the Hong Kong dollar savings for one year. While the threat does not affect the decline in purchasing power, through theirNursing care, but she was concerned to find a job after graduation, he returned to Japan. Such worries are not unfounded. A 4.1% rise in unemployment was the highest in Japan since World War II. Fortunately, the interviewed people know who need to break the school to come back is because the Japanese crisis. They all expressed their concern for the future of the Japanese economy, but they ultimately do not believe that the current crisis is a major event. JiroTide, a strong echo of the Japanese Association Chairman enterprises who have the same feelings, "[t] Japan's economic reality is that he did not like the negative view of the world." In Japan, the chairman of the U.S. Chamber of Commerce, the United States Glen Fukushima, said: " with [f] undamentally involved is that in Japan people do not believe in the rules, things are so bad, they need fundamental change. "feels even in Japan, the United States hope that their will soon pop the bubble economy, andJust look for scapegoats.
Clearly, promising the Treasury the issue is not enough, Rubin, based on the intervention, the yen dropped in mid-June. It's more than 100 million U.S. dollars in the short term payments, reverse bets, pushing up 8%, the yen in one day. Criticized the Government's claim that under the Ministry of Finance of Japan under the auspices of the Bank of Japan to obtain the strength of weak non-performing loans of companies, not markets, are taking effect. More than 600 yuan non-performing loans100 million U.S. dollars, the amount is greater than the entire economy of China is the world's most populous country. Surprisingly, however, the vast majority of Japanese people re-elected the current government. Recycling is everywhere, MIT's Paul Krugman that the Bank of Japan should be inflated money supply and lowering interest rates to stimulate domestic demand and recipes, while others said that Japan in April this year, "Big Bang deregulation is a" free the scheme will eventually pay off long-term view.Whether it is "big bang" or more Schumpeter's evolutionary process is to resign, "Prime Minister Ryutaro Hashimoto last week, the future is uncertain.
