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Wednesday, May 27, 2009
Sunday, May 24, 2009
Hot in trade and plate Food
Traders are using doomsday psychology in dealing with the trade here, I frequently hear them saying foodgrains and edible commodities as a tangible source or margin in near future when armageddon comes on earth, however there are also other significant reasons the best one is world populaiton increasing more and more stomachs to be filled every day the food stocks or commoditiy stocks are bound to reach high...not in near future ie 3 months then definately in 1 year or so.... simple math and to top of it Bloomberg.com ran a story quoting Brazil claiming that indian sugarcare produce is not upto mark so sugar price is bound to shoot 20% lets c whether the forecast is true or not but as far as i know the rain fall has been good India which is always the primary cause for crop failure however same cannot be said about future when rainfalls are predicted to be lesser and lesser... dammn global warming...
My bet would be starting Aqua farm or Pisciculture growing tuna fish in farms using sea water ... is the bet business right now... world needs food make it and supply it...
Deal made on the 13th hole....obsession of golf
Ever since i came to united states I have always heard a saying " business deals are done on 13th hole" being from a 3rd world country golf hasnt had ever been formally or informally introduced to me nor understood why wealthy men in western countries frequent golf courses more often then the middle classs ? why is golf treated as a formal sport on ESPN when the physicall skill is minimal rather negligible unless u consider a swing form of strenious exercise or stolling in park to collect tiny ball from woods as some sort of physical exercise. I however donot consider that it is devoid of skills, rather think it falls in that category, however amongst the skill oriented sports like rifle shooting or archery or figure skating i dont find golf to be amongst the challenging.
When i moved to jersey and started living near a golf course where i go every day to jog, my curiosity towards the game grew stronger as to what makes this game so famous !!! however when i observed few people it struck to me as simple three fold strategy what makes deals on 13th hole
Reason 1:
It gives a sense of exclusivity to those who are playing rather the rich are left there alone hitting ball with a stick training their eye tirelessly towards a hole in a ground trying best to calculate humidity , flow of the wind and slope to hit the ball.......it was all about exclusivity...they are left there alone in their own world disturbed by no one taken care by all the country club the subordinates etc etc.....
Reason 2:
Playability : When i was growing up my mum and dad said that tennis is a rich man's sport didn realise much till i saw Nantucket and Hamptons full of back yard tennis courts , now tennis is a pretty strenious and skill full sport however its too much for the rich so an easier way out is play golf u just got a hit the ball somewhere....
Reason 3:
Inherited: I think Golf has become an icon sports for rich and famous to play and clear their minds of to think about how to make more money. And the same habits are carried out by their kids and their kids etcc......
I still dont think these may be sufficient enough reasons ..... gosh will ask some golfer on the golf course some day.....
Thursday, May 7, 2009
What direction is US heading ???
US was long considered to be a defiant force politically economically and Millitarily, a systematic events starting from sept 9/11 changed this country unfortunately for a negative direction, although i must put a caveat that this is still the best country in the world.. following sequence puts me a in a introspection mode
Winds of change
1"Never before war was fought on US homeland in which 3000 people died " Condoleeza Rice
2 Never before in history on US hurricane size of hurricane Katrina caused so much human and material damage which exposed country's vulnerable , some critics say 3rd world country were better dealing with the katrina aftermath then US statement is disputed but some cases of looting by police officers, curfew, martial law, gang violence etc aggravated during this period
3 The war which is now termed as unnecessary was initiated
4 Reduction in US political clout in europe and middle east a lot of resentment due to war and incoherent administration ..i think its a debatable point
5.Systematic failure of Banking system due to greed of few banking institutions which have now ceased to exist or under govt survelliance
6.Imposition of taxes for outsourcing companies while spreading free trading little bit debatable . Where are we moving free global trade or protectionism..??...it is complete obfuscation to me
7 Free general healthcare for all or reduction in health insurance costs .... completely obfuscation ???
8 Getting directed on economic policies from China ..........ooh yea i forgot they hold max number of treasury notes.... can hold us ransom anytime
9 Falling levels of literacy and education structure ... absolute lack of skilled talent pool
10 Increase in corruption in both higher and lower levels of governmental hierarchy
11. Polarization on basis of religion etc
Last time i checked up on internet was these problems were similar to a 3rd world country agreed the standard of living and quality of living has not changed but yes but above noises sound very similar to a developing country.... these points cover all political millitary and economic clout reduction of US... country should buck up and work hard under current administration and restore its glory ... world need US to be strong in all three departments ....
Sunday, May 3, 2009
Fibonacci retracement
Fibonacci retracement
Fibonacci is a set of number sequence generated by adding up two numbers occuring in a number series for eg number series = 1 2 3 4 5
fibo series 1 1 3 5 8 13 etc
similarly stock also show a similar approach when point A goes to point B there is always a pressure of correction or retracement, how much will these retracement go there are three critical points 38.2%or original 50% and 61.x % as shown in the figure, so first resistance occurs at 38% and if it passes that 50% is next catch and thirdly 61.8 levels.
Next obvious question arises is how are we getting the percentages.... 3/5 ,5/8, 8/13 all generate a number around 0.618x
.382 = .618 squared
.500 = 1 ÷ 2, the second and third numbers in the series
.786 = square root of .618
1.000 = 1.618 x .618
1.272 = square root of 1.618
2.618 = 1.618 squared
.500 = 1 ÷ 2, the second and third numbers in the series
.786 = square root of .618
1.000 = 1.618 x .618
1.272 = square root of 1.618
2.618 = 1.618 squared
I am posting a video which describes in detail the workings of Fibo nacci retracement
Also go to Afraidtotrade.com where corey rosenbloom has posted some cool retracement scenarios... India's NIFTY
ref: swing-trade-stock.com
Find more videos like this on ChartWatchers
Also go to Afraidtotrade.com where corey rosenbloom has posted some cool retracement scenarios... India's NIFTY
ref: swing-trade-stock.com
Find more videos like this on ChartWatchers
Saturday, May 2, 2009
Buffet : Newspapers are Done !!!!
With new media encroaching webosphere twitterosphere blogosphere etc it has become painful for print media to gets its due. When Helen Mirren in State of Play (2009) says to Crowe that "Ms. Della Frye churns out a copy of news paper every hour through her blog" i was stunned , the fact that news papers are becoming quickly things of past but also with the effect of digital media on earning potential of a print media journalist someone like Russell Crowe character in the movie is becoming bleak day bye day.
Recently Ariana Huffington of huffington post and Tom Curley if i am not wrong of Associated Press were fueding on Charlie Rose on the ownershipf links, in lieu of Associated Press deciding to come down hard on its content users, but Arianna was pat in replying that links have become assets how well you monetize them is upto you giving example of MSNBC.COM and THEDAILYSOW.COM embbedable players who monetize.I agree with her people want to read the news where they like and not on AP or Reuters with due respect to the amount of journalism they do but thats the bitter truth. Today Buffet nailed the coffin saying that none in their sane minds would like to buy a news paper since news have become " free " !!! that a disruptive technology like internet has forced to change our lives and our livelihood.
However there are many ways the hard working journalists from AP or Reuters can earn their due I am putting one example of the monetizing ways of Reuters
A columns from Buffet's news conf from REUTERS :
Buffett offers bleak outlook for U.S. newspapers
Thursday, April 30, 2009
what is Fundamental anlaysis and Technical Analysis
I have been hearing a lot of sound bites from business media about "Fundamental Analysis" and "Technical Analysis".Its intriguing to discern it in laymans term for me so help me remember in future i write this blog and all those fellow amateurs this one
Fundamental Analysis
When a trader or a Broker takes a investing decision based on the company financials balance sheet etc and overall climate of socio economic conditions in surrounding area it is called a fundamental trade. For example a political coup in Pakistan or nationalization rumors in Venezuela or say bad profit for the quarter or say political stability in China or change in govt in India etc results in the trader to infer value of a company.
However these days these fundamentals are proving to be costlier to be relied on as the market is really volatile and any speculations could be potentially hitting a nail on your foot.
Technical Analysis
When trader or a broker takes the investing decision based on daily volume , and relies on mathematical analysis using regression techniques or predictive modelling, reversion of mean or technicals like standard deviation,variance, etc Charts which are available on finance.yahoo.com is called as trade on technical analysis.
God knows how the markets are relying these days but for technical trading these days is automatic and computational financial engineering is used as long as the models work so is good once they stop it comes back to sentimental or emotional trading.
check out google: Quant funds to find out different type of mutual funds or hedge funds trading using quantitative analysis...
How to sell a Tennis racket 101
Really !!! world's No. 3 Novak Djokovic selling a racket. Mind boggling ad funny at times boring sometime but overall very very intriguing and it got my attention so kudos to the marketing team.... and kuods to Djokovic to agreeing on doing it.
Sunday, April 26, 2009
Bank Stress Test Conditions......
Un-employment rate - (2010) 10.3 % 2009current 8.9
House Value decline (2010) 30% current 2009 20%
Page 6 of the doc is where the meat is
Stress Test Assumptions
Saturday, April 25, 2009
Elliot wave theory on Bombay Stock Exchange
Yes, like everyone else i am also bitten by the elliotwave theory bug... so i decided to put it to test. Since many bloggers / columnist commentators have sucked curiosity juice from dow jones's comparison to elliotwave i am going to compare it to international stock exchange my pic India's Bombay Stock Exchange's Sensitive Index (SENSEX).
Elliot wave theory works on basis of fibonacci number sequence. where wave 1,3,5 are upward going waves while 2 and 4 are correctional waves. This theory was put in practice by Proff Prechter who was a Trading Analyst who set a 440% return record on options account in 1989 trading match .... ok enough of his background, although this is mathematically related theory pertaining to fibonacci sequence and its golden ratio of 1.6343 Precther and co. beleives that this number occurs in non-randomly fashion in today's stock market. Well tough to beleive that..... but if you implement a mass socio-economic tag or mass psychology tag then suddenly the theory becomes a hot property.
The theory is taught in many financial institutions as non-technical mass psychology theory so that traders can keep them selves ahead of the market....
lets put this theory to test I have taken a 5 year period of BSE : sensex and compared it witht he elliotwave thoery, okay to be precise i am comparing a "cycle"
WIKIPEDIA REFERENCE
The classification of a wave at any particular degree can vary, though practitioners generally agree on the standard order of degrees (approximate durations given):
* Grand supercycle: multi-century
* Supercycle: multi-decade (about 40-70 years)
* Cycle: one year to several years (or even several decades under an Elliott Extension)
* Primary: a few months to a couple of years
* Intermediate: weeks to months
* Minor: weeks
* Minute: days
* Minuette: hours
* Subminuette: minutes
ELLIOT WAVE
BOMBAY STOCK EXCHANGE APR 04-APR09
Halleluajh !!! wooow this thinge fits like a glove !!!!! in the five year spread... this means that we are giong to see one more drop Or below is the end of wave... although i must admit that i have chosen random interval of the uptick and down tick wave .... its like i am biasing the data to fit the model .... but over all first impression not bad... but i wont stop the autopsy .... too vage
OR
Thursday, April 23, 2009
Koreans making move on downturn
First time I came to know about rapid development of South Korean ambition to become a Financial hub, supply chain hub, manufacturing hub, and information technology hub was in a class i took with my proff from industrial engineering. That was the first time I looked at the Korea rather Korean economy for the first time and read about the leaps and bounds taking place in the country.
Recently was again reminded of the gallops taken by the nation when i was reading news about how a KIA plant in Georgia state,US starting this december is been looked upon like an godly saviour. TO me its purely amazing how much the Korean technology economy has become reliable and mutated that they can afford to put up plants in USA to manufacture cars giving honda's and Toyota's a tough time ( Hyundai was voted as best car and they made sure they advertised it :D ) .People in the town call the kia factory as "god sent gift" which will employ thousands and would boost neighbouring economy.The koreans are shrewd businessmen like the Chinese who are harnessing the downturn the Koreans too are lapping up huge ammount of commercial rental property at dirt cheap prices. Of course like many others i too presume that the crisis is not going to last throughout life considering this the investment is bound to give an awesome fruit in near future. However one thing concerns me is the reduction in the manufacturing sector where thousands jobs lost this recession has really brought it to its knees this was also indicated by the reduction in import of spot cargoes containing natural gas by the Korean's. Overall i feel that Koreans and then Chinese and then Indian in same priority order should be bet on ..........
But the bases are set here today's KOSPI from www.Bloomberg.com
Tuesday, April 21, 2009
Reserve Bank of India reduces its intrest rates
Indian Reserve Bank of India cut its lending rate by 25 basis points i.e. 0.25%
repo rate has been cut to 4.75 per cent from the existing 5 per
cent while the reverse repo has been cut to 3.25 per cent from the existing 3.5 per cent.RBI cuts interest rates by 25 bps LINK
Other headlines
RBI on a shopping spree for oil bonds
RBI to upgrade regulations to deal with menace of tax havens
A recent study indicates people from Indian Subcontinent have stashed more than 150billion $ in overseas places like, lichenstein, Mauritius, Switzerland etc .... U.S has started a crack down lets c what Indian regulators do about it
Convolution of information
'Worst is over; India to be on recovery path in 2-3 quarters'
"Dubai's Ruler Says the Worst Is Over"
but down in the third para he says "stimulus packages had helped the economy "shift . . . from the crisis mode to the solution"
Dubai has seen its property market collapse and other main parts of the services-led economy slow down.Spiralling debt and a lack of short-term funding forced the government to take out a $10bn (£6.8bn) loan from the central bank in February to prevent default and help pay government invoices.
"
arrrrrgh too confusing sir......
"US hopes the worst is over"
The thrid para says ...............
"We are in a period of extreme uncertainty but to be optimistic I would say that at least there are some indicators which are not as bad as they were in the past,” Pier Carlo Padoan, the OECD vice director, said in Berlin on Saturday. "
Cnbc thinks susan boyle can save economy
whossssssssh what has world come to
A discussion on elliot wave theory
I heard this on thedisciplinedinvestor.com intresting elliot wave theory is back in fashion...i should admit i have no clue whats logic in elliot wave being applied to a stock market but authors here try to explain it.
ref: thedisciplinedinvestor.com
afraidtotrade.com
TDI Podcast 103: Elliott Wave Theory in Action
Posted using ShareThis
Monday, April 20, 2009
Improved Magic words of the Nassim "Black Swan" Taleb..
Nassim Taleb has come up with improved 10 point scenario to make world black swan free.... nearly impossible task but worth a braincell exercise
Ten principles for a Black Swan-proofworld By Nassim Nicholas Taleb
How to have negative Federal rates 101
Interest rates have always been a motivator to circulate money in the market, with fed rates bottoming out i always wonder would there be a chance of fed going negative percentage. What i mean is say fed loans you 1000 bucks and your return 970 a return that is negative 3%. Why would anyone is such a sane mind would do that? any kindergartner would answer as ..no!!.. instead people would hoard it !!!..however this would not solve the problem we got in the first place by lending money to unqualified borrowers who foreclosed resulting in a spanner thrown in credit circulation.
I was reading a article in new york times by author Proff Gregory Mankiw one of his student suggested the following LINK
Unless, that is, we figure out a way to make holding money less attractive.
At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.
Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit
Although this is a very clever scenario has never been happened before and chances are almost what Taleb would call as Black swan that it might happen :D. A seemingly Ridiculous thought which might make lending more money than hoarding feasible, hands down to the thinker.Interestingly China recently published that it has about 1.29tr $ hard cash will be driven to insanity if such a event occurs and might lend US back in negative interest terms , who knows actually this has tickle my brains to build castles in air. I don't know what other tricks the proff Mankiw's students have in their hat .... like currency expiration date, private circulation of money (deteroit dollar).In these days of electronic exchange of currency how do i know that currency given to me as salary has the number selected by fed to abolish...less than 5% of currency is circulated or stored in physical form.
There is continuing article in economist on this LINK on how to scare the hell out of china...
Rationally thinking china is doing a great national service for survival of United States, by buying and fed treasury bill, supplying high quality goods at reasonable price, and thus allowing the sinking dollar to cling straw. Scaring china out of 10% of its foreign exchange holding would be the day US would be out of existence.
Saturday, April 18, 2009
DATA download links
1. Historical FX Rates: http://oanda.com/convert/fxhistory
2. Historical Stock Prices: YHOO: Historical Prices for YAHOO INC - Yahoo! Finance
3. Recent LIBOR rates: BBA - British Bankers' Association - BBA LIBOR
4. Some Implied Volatilities: http://www.ivolatility.com
5. Delayed Commodities: http://www.liffe-commodities.com/
6. US Fundamentals: http://www.sec.gov
Economic data
UK: http://www.statistics.gov.uk
US: http://www.census.gov ,
http://www.bls.gov ,
http://www.federalreserve.gov ,
http://www.ssa.gov ,
http://www.treasury.gov
(i) For S&P 500 hist. DB:
Historical Stock Data
(ii) For Euronext's stock markets (5y database):
302 Found
(iii) others (very interesting if you have the ticker):
Yahoo! - 404 Not Found
http://bigcharts.marketwatch.com/historical/
Downloader
Historical stock quotes download Metastock
Extensive Data Series
http://www.economagic.com/
Links
http://cpcug.org:80/user/invest/datahist.html
The Financial Data Finder
Currency Data
http://www.oanda.com/convert/fxhistory
Options Data
Stock Options Analysis and Trading Tools on I Volatility.com
Untitled Document
http://www.maoxian.com/memoranda/putcall.html
Free Nightly Intraday Futures Data
http://www.simiansavants.com/cmedata.shtml
Free Data
http://www.traders2traders.com/linkindex/default.asp
Wednesday, April 15, 2009
compress function in SAS
I am posting a small code to convert IP address in in SAS files from character to numeric form
this will make easier to sort bunch of ip address given in log files...
libname ashu "D:\saslibraries";
data ashu.dest(drop = name);
set ashu .source;
name = compress(cip,'.'); * might need to change the ip c-ip to cip while importing file to SAS
cip1 = put(name,12.);
run;
proc sort data = ashu.dest out = dest;
by cip1;
run;
Tuesday, April 7, 2009
Japanese Hedge funds shunning trading models
when half of the global trade is done on trading models Japanese hedge funds are keeping away from the trading models and are more focussed on the internal research, and ofcourse performing well LINK
April 7 (Bloomberg) -- Hideki Wakabayashi sat through 500 meetings with company executives before settling on the stocks that produced a 13 percent advance last year for the long-short equity hedge fund he runs at Tokyo-based Finnowave Investments.
Toru Hashizume matched Wakabayashi’s performance with a 13 percent return for his Ginga Service Sector Fund by following a similar path. He said he sifted through 800 stocks before betting on about 70.
The Japanese hedge fund managers plan to beat benchmarks again in 2009 by shunning computer-driven trading in favor of company research. Their gains contrast with the average 19 percent drop of global hedge funds, according to data compiled by Chicago-based Hedge Fund Research Inc., and the 42 percent slump in the Nikkei 225 Stock Average during 2008, the index’s worst annual performance.
Sunday, April 5, 2009
Friday, April 3, 2009
Moody's , S&P downgraded
The news of Moodys and Standard and Poor being not the sole authorities in deciding credit rating was taken by Insurance companies today according to the article in Bloomberg, this will force insurance companies to develop a new way or to enlarge internal credit risk department. Thus increasing their headache of measuring the risk instead of outsourcing, but reducing the discrepency, thus putting dice,of stability in deciding future risks assesment, rolling. LINK
April 3 (Bloomberg) -- U.S. state insurance regulators may reduce their dependence on firms including Standard & Poor’s and Moody’s Investors Service, saying they are looking into ratings “shortcomings.”
The National Association of Insurance Commissioners has assigned a group to explore “the reasons for recent rating shortcomings” and “the problems inherent in reliance on ratings,” the group said in a statement on its Web site.
The watchdogs are conducting their review after insurers’ portfolios were buffeted by downgrades to commercial mortgage- backed securities held to help back policies. Regulators currently rely on ratings assigned by S&P, Moody’s and other firms when calculating the amount of capital insurance companies must hold to protect against losses on CMBS and other so-called
Thursday, April 2, 2009
Swiss Bank's New Clientele
In interview published in bloomberg.com Banque Cantonale de Geneve's chief says that amidst the loss they took on Bernie Madoff and abandonment of secrecy laws in N.America they find one regional-sector growing, Asia and the Middle East. He further comments “An entrepreneur living in India with Harvard degree" is an ideal candidate for his bank’s prospective growth. This clearly implies that there is huge money flowing in and out of India and will possibly rise in future. This may be very good news not only to Swiss banks but overall also to the regions where it’s targeting because it clearly implies the growth and development is actually happening in the region.
However if you look at it socially to me it is very controversial approach and might lead to disaster for the bank customers because if sooner or later under more international pressure (IMF, World Bank, UN) if they give up their current " secrecy " laws and expose ...poor people living in the subcontinent to the stashed cash of the rich, they would invite huge backlash from a common man.
However, if you look at it positively you'll be forced to conclude that Indians/Middle east have lot of money these days to be put in world market, economic stimulus per se. Cash flow, credit flow is the reason the whole cycle of global economy is stuck,.. what’s wrong if the "Mumbai Money" or " Middle East money" or "Asian money " fuels its growth, since existence of big institutions have ceased to exists in one country the globe should unite to solve this crisis.
Not only Swiss banks should target "India, Asia, Middleast" entrepreneur clientele they should also foment growth in these same markets by encouraging Venture capitalism and other forms of Angel investing and bring back the clean money back to the economy... this cycle of investment, sounds to me like a wonderful plan for growth if only Swiss bank read my blog
As I write this first Swiss Bank casualty is reported by bloomberg
Wednesday, April 1, 2009
This happens when a programmer / MBA works as a Quant
I have always held a point of view, that giving quant job in hands of programers, MBA's would be like inviting hell. They donot realize the perturbations and their outcomes when it comes to stochastic math. A recent article in Nymag.com gives a confessions of a programer who wrote a mortgage software which was later used in this sub prime crisis leading to "modern depression" yes the way he describes in the article it is very clear he was a part of it. Also in this article he describes how traders who get$2million in bonuses behaved like overgrown kindergartners , imagination sends chills down my spine about their largese .These days no one wants to be a quant, but infact banks and financial institutions need quant little reliable one who considers in to account the uncertainity of predictions and minimizes them to be in a safe zone a real mathematician who can help ,for further read i recommend reading this article
Tuesday, March 31, 2009
kelly's criterion
Kelly criterion
There is high influence of mathematics in arbitrage, trading ,hedge fund in short the whole stock market. Today I am trying to explain formulae which are usually used by fund managers to find out how much they can get as average return on their investment; however these are mere on paper calculation sometimes overly optimistic assumptions which should be taken care very cautiously. [http://www.cisiova.com/betsizing.asp]
Avg returns= (1 + W1*F)^(P1) * (1 + W2*F)^(P2)
Where Wi = increase in percentage value of stock you are expecting
Pi = chance of happening this rise based on the backtest
F = fraction u put in the wager
When you play with stocks there is however a funny but simplified formula given by epchan.blogspot.com it says that if you are expecting your stock to increase by 1% or decrease by 1% with 50-50 odds what would you do ?… many will jump on hold the stock as it is going to remain flat…. But formula says otherwise [reference]
Y = m-s^2/2
There is high influence of mathematics in arbitrage, trading ,hedge fund in short the whole stock market. Today I am trying to explain formulae which are usually used by fund managers to find out how much they can get as average return on their investment; however these are mere on paper calculation sometimes overly optimistic assumptions which should be taken care very cautiously. [http://www.cisiova.com/betsizing.asp]
Avg returns= (1 + W1*F)^(P1) * (1 + W2*F)^(P2)
Where Wi = increase in percentage value of stock you are expecting
Pi = chance of happening this rise based on the backtest
F = fraction u put in the wager
When you play with stocks there is however a funny but simplified formula given by epchan.blogspot.com it says that if you are expecting your stock to increase by 1% or decrease by 1% with 50-50 odds what would you do ?… many will jump on hold the stock as it is going to remain flat…. But formula says otherwise [reference]
Y = m-s^2/2
where S = standard deviation =1% m = expected return value =1% F = 0.5% which means we are going to take loss
Kelly criterion is very and some times overly optimistic, I have shown 2 different flavors which are currently used in the market. For more info check out William Poundstone’s Fortune’s Formula (amazon)
How ever there is another complicated formula for this, we can find out how much fraction can we bet to optimize profit for our bank roll….[refence]
y = [(1+v*f)^p]*[(1-f)^(1-p)] = Avg return
f = Fraction optimized for gain
f = [p*(v+1)-1]/v (derivative of y wrt f)
p = Probability of gain
v = Odds of gain
f = [p*(v+1)-1]/v (derivative of y wrt f)
p = Probability of gain
v = Odds of gain
so if odds of winning are v = 2:1 and backtest probability is 50-50 the f = ¼ optimized fraction pluggin into to equation y value would provide us 6.1% avg retrun on our bet.
My interest is purely in the fun of the mathematics and not the application so let me throw a disclaimer of using these formulae’s at your own risk.We have seen effects of these modeling in past when modelers failed to model the financial melt down but in their defense I should also say that a Quant is not astrologer he models based on back testing data given to him . So he cannot predict any event never ever happened before in the history of stock market.
Sunday, March 29, 2009
Movie Be Kind Rewind (2008)
Rating ***/5
A fantastic Jack black comedy, its happens in a little obscure setting, where a movie store employee accidently erases tapes yes VHS tapes, so he decides to plant the movie back in a very unusual fashion... by refilming it thinking people wouldnt notice it. Hardcore Jack Black fans will simply love it....
Employ American Workers Act 2009
Employ American Workers act 2009 was passed by President Barack Obama, as a part of American Recovery Reinvestment Act 2009 on 17th of feb 2009. According to this bill any American company who received money through Trouble Asset relief program (TARP) or Federal Reserve Act cannot hire H1B.This act however is not for ever it expires on 17th feb 2011 exactly 2 years from its inception. Few days back Bank of America refused to honor hiring of foreign nationals. A rough estimate states that almost one third of M.B.A graduates hold foreign nationalities, and more than half of the graduate schools in US in Engineering , Science, Technology are filled with foreign nationals.
When Such acts are passed by US congress it is merely impossible for foreign nationals to come here to study and enrich the intellectual property of this great nation is.The EAWA 2009 act says the following from WWW.USCIS.GOV
however there is a catch EAWA only applies to U.S companies that received covered funding and want to hire NEW H1-B workers ....that means existing h1 b's will not face gruelling time, the sweet caveat is as follows
Having read this comments I think H1B's should breathe easy as new laws are not as draconian as one might have thought. However they might be looked down upon by the future F1 students and immigrants as a potential hazards towards migrating and obtaining green cards. There is a chance that the taxes and houses bought by these high skilled workers,and their contribution towards US economy, might start to fade a little for atleast next 5 years.
When Such acts are passed by US congress it is merely impossible for foreign nationals to come here to study and enrich the intellectual property of this great nation is.The EAWA 2009 act says the following from WWW.USCIS.GOV
It has taken good faith steps to recruit U.S. workers (defined as U.S. citizens or nationals, lawful permanent resident aliens, refugees, asylees, or other immigrants authorized to be employed in the United States (i.e., workers other than nonimmigrant aliens) using industry-wide standards and offering compensation that is at least as great as those offered to the H-1B nonimmigrant;
It has offered the job to any U.S. worker who applies and is equally or better qualified for the job that is intended for the H-1B non immigrant;
It has not “displaced” any U.S. worker employed within the period beginning 90 days prior to the filing of the H-1B petition and ending 90 days after its filing. A U.S. worker is displaced if the worker is laid off from a job that is essentially the equivalent of the job for which an H-1B non immigrant is sought; and
It will not place an H-1B worker to work for another employer unless it has inquired whether the other employer has displaced or will displace a U.S. worker within 90 days before or after the placement of the H-1B worker.
however there is a catch EAWA only applies to U.S companies that received covered funding and want to hire NEW H1-B workers ....that means existing h1 b's will not face gruelling time, the sweet caveat is as follows
New employment (i.e., hires) based on a petition approved before Feb. 17, 2009, if the H-1B employee had not actually commenced employment before that date.
The normal exception to the H-1B dependent employer requirements that an H-1B nonimmigrant is exempt from the dependency calculation if the individual earns a salary of at least $60,000 or has a master’s degree or higher is not available to companies that have received covered funding.
Having read this comments I think H1B's should breathe easy as new laws are not as draconian as one might have thought. However they might be looked down upon by the future F1 students and immigrants as a potential hazards towards migrating and obtaining green cards. There is a chance that the taxes and houses bought by these high skilled workers,and their contribution towards US economy, might start to fade a little for atleast next 5 years.
Saturday, March 28, 2009
Cloud computing is shaping up !!!!
Cloud computing has recently got tons of attention companies like google, amazon and IBM are coming out with guns blazing to capture the computing market however one company NIVIO started by Sachin Duggal gained my attention. Sachin Duggal ,whose credentials include winning pioneer technology award at World Economy Forum in Davos (past winners 2002 is Google), he claims that services provided by web giants mentioned above are restricted to the net or the webusers, while his service would be catering anyone with P.C like interface ...kinda Youtube on demand or MS Excel on demand.This company is not threatened by Google competition since they want to work with them to service their WEB Applicaitons like google docs etc...
How ever there are many skeptics of this technology article in Business week
Like it or not evil or not cloud computing is here to stay reason is simple increase bottom lines by pay as you go service.
How ever there are many skeptics of this technology article in Business week
There are two kinds of risks in putting your data online. One is that you can never be quite sure who has access to your information once it has migrated beyond the hard drives and backup storage devices in your home. The other risk is that the information, and sometimes the applications you need to make use of it, may be available only when you are connected to the Internet and the service is up and running.
Like it or not evil or not cloud computing is here to stay reason is simple increase bottom lines by pay as you go service.
Friday, March 27, 2009
British P.M. taken to task by British MEP
Watch as this guy skewers with excellent oratory ...............
Debt per British child 20,000 pounds
Comparing England's deficit to Pak and Hungary priceless
Fuzzy Dynamic Logic
I had a great honor of meeting Dr. Leonid Perlovsky (AFRL)during my tenure as a graduate student at Arizona state university. So much was I impressed with his brilliance that some part of my blog name contains the name of algorithm he proposed. He intrigued my mind with this algorithm so much that every time i try reading his book i discover new aspects of his approach. At first I hated the combination of Philosophy and AI math together however my friend made me realise that philosophy had been foundation of mathematics since the Roman empire philosophers like plato,socrates,archimedies have contributed towards formation of bedrock of this art.
When i was reading this book for the first time many emotions ran through my mind like frustration & anxiety towards the theory as to why does the author need to mix philosophy and mathematics into a brand new theory. Yet, if the author still wants to go ahead and apply why dosen't he clearly demarcate the boundary ..yes..its though to find clear transition from philosophy to mathematics during his proposal of Modeling Field Theory.During that time (2004 FALL) my advisor Dr Jennie Si whom i have had priviliedge of working with, helped me understand the mathematics of the proposed MFT through some of his published work, this reduced my anxiety and gained control over the understanding the working of it.
I want to throw a humble disclaimer that i was just a mediocre research aide, but the theory was in its virgin days of its publication, and since i had read and understood every possible theory for predictive modelling some were tool difficult to realize practically some were too unstable to implement.I perceived MFT to be somewhere in between the two states was not too difficult to realize and at same time it was too good to be working beyond theory.
I think this extremely flexible and its implemetations will be world changing...... So guys those are curious heads and those in mathematics or engineering if u have a chance please read this excellent book I am placing a link to amazon
Neural Networks and Intellect: Using Model-Based Concepts (Hardcover)
by Leonid I. Perlovsky (Author)
When i was reading this book for the first time many emotions ran through my mind like frustration & anxiety towards the theory as to why does the author need to mix philosophy and mathematics into a brand new theory. Yet, if the author still wants to go ahead and apply why dosen't he clearly demarcate the boundary ..yes..its though to find clear transition from philosophy to mathematics during his proposal of Modeling Field Theory.During that time (2004 FALL) my advisor Dr Jennie Si whom i have had priviliedge of working with, helped me understand the mathematics of the proposed MFT through some of his published work, this reduced my anxiety and gained control over the understanding the working of it.
I want to throw a humble disclaimer that i was just a mediocre research aide, but the theory was in its virgin days of its publication, and since i had read and understood every possible theory for predictive modelling some were tool difficult to realize practically some were too unstable to implement.I perceived MFT to be somewhere in between the two states was not too difficult to realize and at same time it was too good to be working beyond theory.
I think this extremely flexible and its implemetations will be world changing...... So guys those are curious heads and those in mathematics or engineering if u have a chance please read this excellent book I am placing a link to amazon
Neural Networks and Intellect: Using Model-Based Concepts (Hardcover)
by Leonid I. Perlovsky (Author)
Thursday, March 26, 2009
America and marijuana economy
There is heated debate going on through out American continent, lets legalize marijuana proponents of this claim put forward reasons such as
* Reduction in drug related violence
* Better medical heath care
* Tax stimulation to the county, state and country
* Job opportunities for impoverished families
* Reduction in Drug Cartel related violence and drug cartel income citing prohibition example
* Reduction in Non-violent drug offenders in jail saving huge tax dollars
Pro-pot blogs
Dan Sweeney
http://www.huffingtonpost.com/dan-sweeney/taking-the-pro-pot-positi_b_179653.html
Jim Gilliam
http://www.huffingtonpost.com/jim-gilliam/pot-saved-my-life-mr-pres_b_179585.html
Opponents argue
* Increase in violence just like drunk driving is side effect of lifting prohibition
* Increase in delinquencies in children when they buy marijuana from their fav coffee shop
* Increase in violent crimes related to marijuana
* Youth will be destroyed bad example
* Chaos in society etc...
Even if Jim Gilliam's life had been saved by marijuana based medicine it does not mean
That it is a healthy for rest of America. Even though Marinol saved his life that doesn’t mean that whole country should be freely using limited version of marijuana. Proponents argue that those who want marijuana they ultimately have it by hook or by crook then why not earn tax dollars on it. However in my counter argument those people who are unaware of this vice will at least be saved from Desire of “trying it out ". However Chris weigant (chrisweigant.com) argues on huffingtonpost that although marijuana based drugs are allowed in 25% of American states
From wikipedia: List of schedule I drugs
This is a list of Schedule I drugs under the Controlled Substances Act for the United States. Required findings for drugs to be placed in this schedule:
1. The drug or other substance has a high potential for abuse.
2. The drug or other substance has no currently accepted medical use in treatment in the United States.
3. There is a lack of accepted safety for use of the drug or other substance under medical supervision.
This is a list of Schedule II drugs under the Controlled Substances Act for the United States. Required findings for drugs to be placed in this schedule:
1. The drug or other substance has a high potential for abuse.
2. The drug or other substance has a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions.
3. Abuse of the drug or other substances may lead to severe psychological or physical dependence.
Then why it is not schedule II drug and its still schedule I drug, he further argues that since Obama decided to place science in its rightful place then why doesn’t he allow marijuana to become schedule II drug. My argument is why do you need rescheduling your drug under different category what will it symbolize that marijuana is more family friendly. I think marijuana has long history of abuse and just
as meth and other medical drugs are abused by kids from their grandparent's medicine box i foresee a difficult task for the authorities to control already grey area for prescription abuse.....What people are proponent are is the free use of marijuana not the drug based marijuana. So if the US govt is already allowing free use of marijuana based drugs why are people pushing the envelope for legalizing sale of retail marijuana in coffee shop......there are much better to take economy on high then Marijuana
* Reduction in drug related violence
* Better medical heath care
* Tax stimulation to the county, state and country
* Job opportunities for impoverished families
* Reduction in Drug Cartel related violence and drug cartel income citing prohibition example
* Reduction in Non-violent drug offenders in jail saving huge tax dollars
Pro-pot blogs
Dan Sweeney
http://www.huffingtonpost.com/dan-sweeney/taking-the-pro-pot-positi_b_179653.html
Jim Gilliam
http://www.huffingtonpost.com/jim-gilliam/pot-saved-my-life-mr-pres_b_179585.html
Opponents argue
* Increase in violence just like drunk driving is side effect of lifting prohibition
* Increase in delinquencies in children when they buy marijuana from their fav coffee shop
* Increase in violent crimes related to marijuana
* Youth will be destroyed bad example
* Chaos in society etc...
Even if Jim Gilliam's life had been saved by marijuana based medicine it does not mean
That it is a healthy for rest of America. Even though Marinol saved his life that doesn’t mean that whole country should be freely using limited version of marijuana. Proponents argue that those who want marijuana they ultimately have it by hook or by crook then why not earn tax dollars on it. However in my counter argument those people who are unaware of this vice will at least be saved from Desire of “trying it out ". However Chris weigant (chrisweigant.com) argues on huffingtonpost that although marijuana based drugs are allowed in 25% of American states
From wikipedia: List of schedule I drugs
This is a list of Schedule I drugs under the Controlled Substances Act for the United States. Required findings for drugs to be placed in this schedule:
1. The drug or other substance has a high potential for abuse.
2. The drug or other substance has no currently accepted medical use in treatment in the United States.
3. There is a lack of accepted safety for use of the drug or other substance under medical supervision.
This is a list of Schedule II drugs under the Controlled Substances Act for the United States. Required findings for drugs to be placed in this schedule:
1. The drug or other substance has a high potential for abuse.
2. The drug or other substance has a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions.
3. Abuse of the drug or other substances may lead to severe psychological or physical dependence.
Then why it is not schedule II drug and its still schedule I drug, he further argues that since Obama decided to place science in its rightful place then why doesn’t he allow marijuana to become schedule II drug. My argument is why do you need rescheduling your drug under different category what will it symbolize that marijuana is more family friendly. I think marijuana has long history of abuse and just
as meth and other medical drugs are abused by kids from their grandparent's medicine box i foresee a difficult task for the authorities to control already grey area for prescription abuse.....What people are proponent are is the free use of marijuana not the drug based marijuana. So if the US govt is already allowing free use of marijuana based drugs why are people pushing the envelope for legalizing sale of retail marijuana in coffee shop......there are much better to take economy on high then Marijuana
Second round of outsourcing .... ?
Last time there was a bubble in United states economy it gave birth to a Flat World as Tom Friedman would like to call, so i want to ask a question will we see a second round of outsourcing after economy bottoms up. Recently an article in Time described it as Rebirth of Outsourcing. Whether it will happen or not depends on when and how the economy recoveres itself from the mess. However this time i think that there will be outsouricng in more than one sector like Pharma,Finance,Banking etc, which were considered primarily "cannot be outsourced" U.S. jobs.
China and India are watching these developments very closely, and ready to pounce on every opportunity donated by US. This will force Barack Obama to impose protectionist policies on economy under heavy public outburst,resulting in chaos, however in the President's defence there is no other way than the will of his constituents. So will United States act impulsively or patiently after the crisis is over is worth a bet, but the bet i am going to put money on is the shift of large ammount of jobs to Asia( India is also in Asia) because that is where the market is and that is where the human resource is . I hope the young Americans will realise the necessity of giving themselves extra training skills to procure back these jobs.
America is going through a road less travelled, high recession,high unemployment , large deficits , outsourcing,ponzi schemes,ineffecient people in power, threat from terrorism, and a directionless economy. Nouriel Roubini the great Dr. Doom predicts today in bloomberg.com that value of stocks are still going to fall which leads me to my previously asked question do the banking executives know really how much losses they have made in first place.
China and India are watching these developments very closely, and ready to pounce on every opportunity donated by US. This will force Barack Obama to impose protectionist policies on economy under heavy public outburst,resulting in chaos, however in the President's defence there is no other way than the will of his constituents. So will United States act impulsively or patiently after the crisis is over is worth a bet, but the bet i am going to put money on is the shift of large ammount of jobs to Asia( India is also in Asia) because that is where the market is and that is where the human resource is . I hope the young Americans will realise the necessity of giving themselves extra training skills to procure back these jobs.
America is going through a road less travelled, high recession,high unemployment , large deficits , outsourcing,ponzi schemes,ineffecient people in power, threat from terrorism, and a directionless economy. Nouriel Roubini the great Dr. Doom predicts today in bloomberg.com that value of stocks are still going to fall which leads me to my previously asked question do the banking executives know really how much losses they have made in first place.
Arms sale wrapped around in girls arms
Aero India 2009 had some serious guests from all over the world however one which caught my attention was Israeli Rafael which posted a Bollowood dance number to sell their missiles and weapon system to india. India's famously grumpy neighbour firstly hated our millitary ties with Israel, but embedding cultural zing would even throw them off their couch
Wednesday, March 25, 2009
Why are drug companies hyperventilating
Few weeks back if you noticed pharma companies were in merger takeover talks companies like wyeth & Pfizer , roche & genentech, people were exteremely excited to listen to these drug companies playing capitalism capitalism in times of utter chaos in financial sector. Few anchors of CNBC were pretty excited to see that American credentials of being free fair and capitalist nation exist, as if trying to defend the faltered economy. However there is a genuine reason behind these mergers and
and take overs for example pfizer accordint to a report in zack.com 40% of the pfizer 18 billion dollar revenue generating drugs are going to looose their patents in next 4 years these drugs include some of the famous ones like Caduet, Geodon, Viagra, and Xalatan between now and the end of 2012.Merck, will see 32% revenue of 2009 of its drug getting wiped of it balance sheet which includes medicines like Singular and Cozaar GSK has 4% revenue exposed, J&J has 6% exposed between 2011 and 2012.
Hence these companies are in takeover and merging mood, how can a company afford to tell its customers that sorry our 25% revenues are now 0% in 2012, so its a great time to short these companies, unless of course the merger proves inverse, but definately 2011 and 2012 will be the year pharma companies will have to forsee costcutting and increase in research spending, this would mean increase in outsourcing to 3rd world countries lab tests conducted on Indian subcontinent or Africa so lets gear up for watching collapse or say crack in wall of great pharma industries. But the Generic drug companies are here to make profit from these drugs especially drugs like viagra would definately have lot of takers on it so keep long options for some generic drug manufacturers, those in finance or credit business need to increase their credit riskiness of these companies and downgrade their credit rating unless they generate some break through durg like lipitor....
This is great time for a newbie generic drug manufacturer to approach pfizer merck or any other company to buyout their complete plants and place sales royalty turnkey business model.
and take overs for example pfizer accordint to a report in zack.com 40% of the pfizer 18 billion dollar revenue generating drugs are going to looose their patents in next 4 years these drugs include some of the famous ones like Caduet, Geodon, Viagra, and Xalatan between now and the end of 2012.Merck, will see 32% revenue of 2009 of its drug getting wiped of it balance sheet which includes medicines like Singular and Cozaar GSK has 4% revenue exposed, J&J has 6% exposed between 2011 and 2012.
Hence these companies are in takeover and merging mood, how can a company afford to tell its customers that sorry our 25% revenues are now 0% in 2012, so its a great time to short these companies, unless of course the merger proves inverse, but definately 2011 and 2012 will be the year pharma companies will have to forsee costcutting and increase in research spending, this would mean increase in outsourcing to 3rd world countries lab tests conducted on Indian subcontinent or Africa so lets gear up for watching collapse or say crack in wall of great pharma industries. But the Generic drug companies are here to make profit from these drugs especially drugs like viagra would definately have lot of takers on it so keep long options for some generic drug manufacturers, those in finance or credit business need to increase their credit riskiness of these companies and downgrade their credit rating unless they generate some break through durg like lipitor....
This is great time for a newbie generic drug manufacturer to approach pfizer merck or any other company to buyout their complete plants and place sales royalty turnkey business model.
Kalman filter .... linear dynamic filtering
Kalman filter
what is kalman filter ?
Kalman is recursive Linear dynamic filter, based on markov chain perturbed or modelled based on Gaussian noise. The primary applications of kalman filter include Computer vision, Financial Engineering wherever there is involvement of predictive analysis. In practical applications Discerete Kalman filter is applied it works on the basic principle as shown in the figure below[1]
time update <-----------> Measurement update
Time update
i.e.Prediction
* to predict the next state
* to update the probability distribution based on current prediction
Measurement
i.e. correction
* determine vairance of measurement noise
* intialization of noise covariance
A detailed explaination is given in this kalman paper
for example...
Time update
Predict next possible location of target in a 2D environment, to implement this practical task we first intialize the current pixel location (say A(20,30)) of the target to generate a possible probability distribution, ( generate priori) measurement update Predict next possible position the kalman filter will randomly choose particles from the region surrounding say radius r (say r = 10pixels) which will be the new vairance and evaluate the covariance with respect to possible target feature( i.e. small cut out from the image of the target) can be used. and define the particle within the gaussian boundry which minimizes the error, ending up generating posteriori . go back to time update.
Applications
Predictions of relatively linear dynamic stock prices
Prediction of target in target in Automatic Target tracking video survelliance
Embedded system applications include Vehicle stability, vehicle control , camera stability and control
weather prediction
speech analysis
Radar tracking
References and cool Stuff
-----------------------------
Basic intro to kalman
[1]http://www.cs.unc.edu/~welch/media/pdf/kalman_intro.pdf
what is kalman filter ?
Kalman is recursive Linear dynamic filter, based on markov chain perturbed or modelled based on Gaussian noise. The primary applications of kalman filter include Computer vision, Financial Engineering wherever there is involvement of predictive analysis. In practical applications Discerete Kalman filter is applied it works on the basic principle as shown in the figure below[1]
time update <-----------> Measurement update
Time update
i.e.Prediction
* to predict the next state
* to update the probability distribution based on current prediction
Measurement
i.e. correction
* determine vairance of measurement noise
* intialization of noise covariance
A detailed explaination is given in this kalman paper
for example...
Time update
Predict next possible location of target in a 2D environment, to implement this practical task we first intialize the current pixel location (say A(20,30)) of the target to generate a possible probability distribution, ( generate priori) measurement update Predict next possible position the kalman filter will randomly choose particles from the region surrounding say radius r (say r = 10pixels) which will be the new vairance and evaluate the covariance with respect to possible target feature( i.e. small cut out from the image of the target) can be used. and define the particle within the gaussian boundry which minimizes the error, ending up generating posteriori . go back to time update.
Applications
Predictions of relatively linear dynamic stock prices
Prediction of target in target in Automatic Target tracking video survelliance
Embedded system applications include Vehicle stability, vehicle control , camera stability and control
weather prediction
speech analysis
Radar tracking
References and cool Stuff
-----------------------------
Basic intro to kalman
[1]http://www.cs.unc.edu/~welch/media/pdf/kalman_intro.pdf
Excellent resource of kalaman research papers and implemenntation
[2]http://www.cs.unc.edu/~welch/kalman/
[2]http://www.cs.unc.edu/~welch/kalman/
MATLAB implementation book
[3]http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470173661.html
[3]http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470173661.html
MATLAB TOOLBOX
[4]http://www.cs.ubc.ca/~murphyk/Software/Kalman/kalman.html
[5]http://www.mathworks.com/matlabcentral/fileexchange/5377
[5]http://www.mathworks.com/matlabcentral/fileexchange/5377
2D Target Tracking using MATLAB
[6]http://www.mathworks.com/matlabcentral/fileexchange/14243
[7]http://en.pudn.com/downloads50/sourcecode/math/detail173459_en.html
[6]http://www.mathworks.com/matlabcentral/fileexchange/14243
[7]http://en.pudn.com/downloads50/sourcecode/math/detail173459_en.html
Wikipedia page for reference
[8]http://en.wikipedia.org/wiki/Kalman_filter
Tuesday, March 24, 2009
Credit Ratings and Probability of Default
As i was researching for this article, I came across a startling fact about serious involvement of rating agencies and the collapse of our financial system. IT is called as credit rating or credit worthiness of a company, for example moodys has a rating schema as follows Long-term Debt Ratings (maturities of one year or greater)
Investment Grade
Aaa – highest rating, representing minimum credit risk
Aa1, Aa2, Aa3 – high-grade
A1, A2, A3 – upper-medium grade
Baa1, Baa2, Baa3 – medium grade
Speculative Grade
Ba1, Ba2, Ba3 – speculative elements
B1, B2, B3 – subject to high credit risk
Caa1, Caa2, Caa3 – bonds of poor standing
Ca – highly speculative, or near default
C – lowest rating, bonds typically in default, little prospect for
recovery of principal or interest
The credit risk analyst at AIG and other insurance companies who insured these CDO's did it without capital backing and secondly it gave a clean chit to the banks that since the securities were insured "risk" was reduced on their balance sheet. A quant engineer or a Credit Risk Analyst predicts the rate of default or probability of default on the basis of the ratings given by the credit rating agencies like Moody. From 1995-2004 there has been 0% default rates for AAA rating companies or securities, however when AIG insured the bank CDO these mortgage back scurities immediately became AAA rating the rating given to AIG itself, and we know the rest of the story.
Although if based on priori information its difficult to convert the ratings to probabilities of default you can do it using modelling techniques so as to assign AAA rating some kind of default probability and not 0. There are some curve fitting techniques which can model it perfectly, but needs more perfection. I will try to investigate these modelling/curve fitting/regression etc to find out that will assign a decent PD to the rating.
Investment Grade
Aaa – highest rating, representing minimum credit risk
Aa1, Aa2, Aa3 – high-grade
A1, A2, A3 – upper-medium grade
Baa1, Baa2, Baa3 – medium grade
Speculative Grade
Ba1, Ba2, Ba3 – speculative elements
B1, B2, B3 – subject to high credit risk
Caa1, Caa2, Caa3 – bonds of poor standing
Ca – highly speculative, or near default
C – lowest rating, bonds typically in default, little prospect for
recovery of principal or interest
The credit risk analyst at AIG and other insurance companies who insured these CDO's did it without capital backing and secondly it gave a clean chit to the banks that since the securities were insured "risk" was reduced on their balance sheet. A quant engineer or a Credit Risk Analyst predicts the rate of default or probability of default on the basis of the ratings given by the credit rating agencies like Moody. From 1995-2004 there has been 0% default rates for AAA rating companies or securities, however when AIG insured the bank CDO these mortgage back scurities immediately became AAA rating the rating given to AIG itself, and we know the rest of the story.
Although if based on priori information its difficult to convert the ratings to probabilities of default you can do it using modelling techniques so as to assign AAA rating some kind of default probability and not 0. There are some curve fitting techniques which can model it perfectly, but needs more perfection. I will try to investigate these modelling/curve fitting/regression etc to find out that will assign a decent PD to the rating.
UPDATE : Goldman Sachs is planning to return the govt money
Monday, March 23, 2009
Attention !!! Goldman Sachs is out of NEWS
Goldman Sachs (NYSE:GS)is one investment banking firm which is not making noise even as UBS , Bank of America, Merrill Lynch, and favourite whipping child AIG is getting broiled. It seems that these companies have not estimated how much actual damages are, for eg UBS came down last with 18billion dollar write downs..... how many is too much, and then
citigroup CEO Vikram Pandit shooting down an email to employees that gloomy days of loss making quarters are over, but sir, have u taken a breath and realised that although operating profits are higher than normal,you are discounting the fact that your company has a huge disadvantageous federal bailout loan on your head it is as if to say " Profits are kept privately but losses spread socially " . With due respects to the CEO and CFO i think all the American banking companies or Financial companies should go back to the drawing board and figure out once and for all how much losses they have made bring it down to table and take hit just for one time.
citigroup CEO Vikram Pandit shooting down an email to employees that gloomy days of loss making quarters are over, but sir, have u taken a breath and realised that although operating profits are higher than normal,you are discounting the fact that your company has a huge disadvantageous federal bailout loan on your head it is as if to say " Profits are kept privately but losses spread socially " . With due respects to the CEO and CFO i think all the American banking companies or Financial companies should go back to the drawing board and figure out once and for all how much losses they have made bring it down to table and take hit just for one time.
This is excellent tactic usually company does, let the bad news be let out when the market is bad, so when Dow is going down what the hell people care if u have consistently written down billions of dollars. That raises to the point where is "Quality Unparalleled knowledged Employee " which was long boasted by American Financial Institutions, which went there instead of becoming Doctors and Engineers. Where are brightest of all minds gone ???? eternal question i cannot understand..... where are the financial whiz kids now what are they doing now to solve the problem
Hence I feel something is cooking in the Goldman Sachs I think they are the ones who are assesing their losses and investigating their asset quality, which makes them one of the first ones to rebound in my opinion amongst the first ones to out shine and come out of the Great Recession of 21st century.
Like many I felt sense of exuberence when i see market rally as today's but this was immediately shot down by my friend who predicts that this is just a false start and calls it nothing more than " Emotional outburst" he says the worst is yet to come with dow shedding few thousand points down to 5000 -6000 range before it bottom's out
Even though we agree and disagree that greed, bonuses,falsification, ponzi scheme, idiotic quant modelling ....lead to the cataclysmic fall of this market i think these three factors will continue to thrive even in the worst of economies, and that is how Capitalism will be shaped.
Hence I feel something is cooking in the Goldman Sachs I think they are the ones who are assesing their losses and investigating their asset quality, which makes them one of the first ones to rebound in my opinion amongst the first ones to out shine and come out of the Great Recession of 21st century.
Like many I felt sense of exuberence when i see market rally as today's but this was immediately shot down by my friend who predicts that this is just a false start and calls it nothing more than " Emotional outburst" he says the worst is yet to come with dow shedding few thousand points down to 5000 -6000 range before it bottom's out
Even though we agree and disagree that greed, bonuses,falsification, ponzi scheme, idiotic quant modelling ....lead to the cataclysmic fall of this market i think these three factors will continue to thrive even in the worst of economies, and that is how Capitalism will be shaped.
Statistics on Computer
Hello all i am compiling a list of statistical analytical software, each of these software have some core expertise of applied statistics, although majority are versatile,WEKA,R are free however Matlab SAS you can buy student versions have fun mining the data and let me know if new stat tools come in market.....Some of my favourites have been Matlab and WEKA excellent data mining and analytical tools...
WEKA
http://www.cs.waikato.ac.nz/ml/weka/
R-Project
http://www.r-project.org/
SPLUS
http://www.insightful.com/products/splus/
SAS
www.SAS.com
MATLAB
www.mathworks.com
WEKA
http://www.cs.waikato.ac.nz/ml/weka/
R-Project
http://www.r-project.org/
SPLUS
http://www.insightful.com/products/splus/
SAS
www.SAS.com
MATLAB
www.mathworks.com
Movie Blood Diamond
Rating ****/5
Amazing direction and cinematography of this movie, the story is about a diamond being found in African continent and amount of blood,money,weapons exchanged during its tumultous journey into our life is captured. This is aamazing cast i beleive leonardo di caprio has found amazing eye to read script, although its a old movie for a review if not watched worth the watch
Sunday, March 15, 2009
Roti Kapda Makan & Quant analysis
Roti (food an medicines) Kapda( clothing,toileteries ) and Makan (housing, construction )are three pillars of Indian industrial philosophy of survival and hence the industry around it can never affected even during the darkest of the hours, but in these uncertain days let me add the unpredictable variable to it. How can the unpredictable variable
affect the growth of industry. The principle of non-linear dynamics in stochastic analysis of a stock market takes into account various factors of uncertainty, some of them failed recently due to lack of addition of failure variable to it or overlooking the failure rate as convservative it might sound its critical . Many Quant analyst forgot to add or forsee this hence i would like to propose a approach in which you can model uncertain eventualities happening at regular intervals or i.e non-linear dynamics taking place at linear time interval. This would add a tremendous boost to formulation of failure analysis of a prediction model. If you are student of stochastic mathematics then you know that prediction models are based on prior information ( probability distribution if u dont have u assume intial values)or 'priori', but what happens when hurricane,credit crisis or dot com bubble happens how can we predict and detect unnatural, hyper-active activity in stock market and develop our model, there are two theories i have had an eye on, first is the Fuzzy Dynamic Logic proposed by AFRL based scientist Dr. Daniel Perlovsky, his model is highly flexible and state of the art prediction models, and second one is the Rao-Blackwell theory.
In order to understand the first theory i would suggest use of the fuzzy dynamic logic text book by Dr. Perlovsky as it might be beyond scope of my blog to explain in one or two para. The second one is Rao-Blackwell filter, this theory proposes use of linear and non-linear dynamics parallel to various variables. For example probability of default can be added into the non-linear prediction analysis however growth of company can be a linear model. I don't know what variables financial engineers use but one thing i know that they use this science without understanding the philosophy of it . Using these techniques we can involve the uncertainty variable such as natural calamity, credit rating, leverage into a tighter leash of predictability, thus increasing "chances" of model to predict failure rate.
Before i finish my blog i reiterate that regression and curve fitting can be helpful if the ocurrance of the event is predictable 'priori' how ever events such as natural disasters and other failure scenarios have never before covered adding completely flexible dynamic to it and even if taken into account it is biased hence increasing the risk of failure.
Friday, March 6, 2009
Cricket Under The Clouds Of Terrorism
Few days back Srilankan cricket team visiting Pakistan's Lahore's Gaddaffi stadium came under heavy gunfire attack from 12 unidentified gunmen with Ak-47s , hand grenades and rocket launchers, say luck or god's grace there was no fatality, although there were few injuries but were taken care off. This incident followed a huge tsunami of criticism against security provided by Pakistani security agencies. The English and Australian match offcials gave a startling event description sending the Pakistan Cricket Board and its security agencies in to a tailspin. Many like me have a opinion that Srilanka in spite of warning going to prove a 'brave' point went to Pak was unnecessary in first place, and secondly the security was the culprit . Having said many of my friends disagree and consider a conflicting view point. Kartikeya Date in his blog writes :" I haven't read a single angry reaction by any Sri Lankan cricketer to what happened in Lahore. Chris Broad and Simon Taufel on the other hand, have gone to town about how they were "left alone", even though people died trying to protect them ..."
The comments on his posts are really interesting and contradictory, however i respect his opinion but would politely like to differ. Let me remind all of you that Kartikeya is one of the leading cricket blogger in world, his credentials include his own cricket rating which i think is very balanced, and his unparalleled commentary on cricketing events taking place daily. Please visit and read his blog and do provide your point of view on the Pakistan cricket issue.
Thursday, March 5, 2009
Citbank to its lowest point
As I write, Huffingtonpost is already displaying list of things which are cheaper then a Citibank share, this news is very very depressing to all of us as the pioneers of capitalism have come to such a cataclysmic grinding halt. Who would have imagined pillars of capitalism Bear Stearn's Lehman Bros. Merill Lynch would be victim of sheer greed. I am pretty sure that Vikram Pandit and his gang is up late nights trying to save citi from its complete annihilation,
Having said that all is not well in the heartland of economy, people are depressed due to lack of jobs, executives forced to janitorial jobs and food banks flooded with people driving in their SUV's shows clearly how bad times are. There is a increasing number of parents who are bringing their kids back to live in their basement, savings have increased to average rate of 5% highest since 1995 bankruptcy filing up 31%. However there is a silver lining....with news coming in today that huge reduction in the applicants for jobless benefits by up to 30,000 less, Walmart having surge in sale of 5.1 % regulators reducing tough regulations to help money flow in the inter banking loan...these indicators make may people on CNBC predict that there might be 100% jump in the share value of some financial institutions well as much as skeptical I am, sincerely wish it becomes true.
With such pessimistic numbers coming out in just one day .... I leave you with a dose of comedy by Jon Stewart who sums up his frustration on Rick Santelli and CNBC in one word F**K you..here is the video.
Wednesday, March 4, 2009
Halt in Global Trade and Unemployment
I was reading an article on H1-B visa oversight by United State government, this triggered an instant thought in my mind what would US be like...... crippled or strengthened by stopping the the whole H1-B visa regime, what would happen if US Senators become successful in passing resolution to reduce or completely remove the H1B regime , luckily I have had a chance to not only observe the outsourcee side point of view but also studied the outsourcer's arguments too.
Companies like Infosys TCS WIPRO are one of the most visible landmarks of the great Indian outsourcing saga, their business model is simple to deliver an end-to-end product to a global or local customer at a competitive market rate, this end-to-end product involves various steps,
1)project bidding based on man hour rate calculations
2)taking the project offshore and implementation
3)second round of project analysis and
4) final deployment.
I have may have missed a few but overall this is the basic skeleton of the business model .Now comes the question of H1-B ...where does it fit ?, not many people understand the importance of deployment process which happens on site i.e. United States of America , this involves several engineers coming from India to United States on H1B visa simply because it happens that there is no other visa available for such a process, of course some may argue that there is a business B1/B2 visa but majority of these projects extend more than 3 months of deployment which is usual durations of such visas. So the outsourcer's argument holds. This is what few Senators in US should be educated on. No Sir.... Indians are not putting your people out of jobs rather making " your " companies profitable.
Today the notion of a truly American company has cease to exist, the rate at which the U.S. financial market exposed it tentacles to the global markets like Eastern Europe, Middle East and Asia, that it virtually bankrupted countries like Iceland completely where debts are $330,000 per each man,woman and child. Companies like Boeing,CAT,Pepsi co,Coca Cola,Adidas Nike , McDonald's today are beefing their balance sheets merely by the increased profits in China,India and rest of East Asia.....question is .... are they really American companies any more ?, Chrysler and Ford, GM may close or fire people in Detroit but ask about their sales in Asia and you'll have a rosy faces, just ask Pepsi's CEO Indra Nooyi who constantly visits the region to nurse the growing market. I am pretty sure Indian and Chinese are very net savvy activists who will argue that if H1-B's are cutoff due to the protectionist policies then so should Pepsi and Coke should be made to pay more taxes, resulting in a global trade tossed in air ,a complete confusion in global trade causing severe losses on both sides of the oceans, the U.S. 401 k's will shrink due to lesser bottom lines of their companies and Ind/Chin will lose on standard and quality of living, there will be a transfer of huge trade from United States to Europe. This based on the fact that several European leaders rationally and rightfully disagree on Iron curtain protectionism last week. So everyone will go back to the 1980's, especially in United States in terms where the stock values would fall, resulting in utter chaos and anarchy..... in Global Trade...
My suggestion is have PATIENCE till markets recover, as i write Dow Jones have risen today, by how much doesn't matter in this economy, but it has ..............
Comments suggestions and corrections typo and colliding point of view are welcome.....
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