Kamis, 24 September 2009

Measuring Risk with Monte Carlo Simulation

. Kamis, 24 September 2009
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Monte Carlo simulations up to now regarded as the best simulation predicts the risk for its accuracy. How the origins of this simulation, the mechanism and its use in the financial world?

Origin Discovery
Credit invention Monte Carlo method is often given to Stanislaw Ulam, a Polish mathematician. Ulam is known as the man who designed the hydrogen bomb with Edward Teller in 1951. Meanwhile, he himself found the Monte Carlo method in 1946 while taking into account the probability of winning solitaire card game.

On the other hand, in the world of finance and financial mathematics, Monte Carlo method is very useful to do a valuation and analysis of the various instruments and portfolio investment. This method allows simulation of various factors that affect the value of uncertainty, so that then can determine the average value

Monte Carlo method was first introduced into the financial world by David B. Hertz in 1964, in the article "Risk Analysis in Capital Investment" in the Harvard Business Review. Furthermore, in the year 1977, Phelim Boyle is the first time using this simulation in the paper about Options.

Mechanism Simulation
Monte Carlo Mechanism Simulations are often used to predict a specific value, based on historical data collection. This method is one of many methods of trying to analyze uncertainty, where the objective is to determine how random variation, lack of knowledge, and errors, may affect the sensitivity, performance, or reliability of the modeled system.

This simulation is classified as a sampling method, because the input generated at random from the probability distribution, to simulate the sampling process of the actual population. Thus, here we are trying to choose the input distribution that best matches the data held. The data generated from this simulation and then presented as probability distributions (histograms) or converted to error bars, reliability prediction, tolerance zones, until the confidence interval.

The use of World Finance
Monte Carlo simulation is widely use in the financial world, especially in investment and investment instruments are complex and involve many factors. Here are some investments that uses Monte Carlo simulations:
Evaluation Project, can be used to estimate the cost of the project and the Net Present Value of the project. In NPV account, for example, cash flow is a very big role, and have a high uncertainty, so that the simulation is very useful.
stock option valuation, where the simulation generates thousands of possible price of the underlying stock, each of which is accompanied by exercises option value. Payoff is then direrata and discounted to the present, the current option value.
Valuation of bonds, where the uncertainty is simulated interest rates. At every possible interest rate movements, then there are the estimated yield curve and bond prices are different. Valuation done by the average of these prices, then the present value.
Quantifying the risk, such as Value At Risk, where the data is the portfolio data and historical market data, for measuring the risk of a portfolio.

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Rabu, 16 September 2009

Why Starting business in Singapore?

. Rabu, 16 September 2009
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start a business from a beginning, it takes something different. To start a busines, Initial concept begins with a place. Singapore is a great place to start a business. Singapore is well known around the world as a multicultural, multi religious and multi racial harmonious island food paradise. Starting as a quiet, laid back fishing village, Singapore has grown exponentially to become of the most densely populated country in the world with a population of 4.8million living closely together in a land area of 224.5 square miles. Singapore has also become the richest country in South East Asia and one of the most developed countries in the world. It is no surprise then that Singapore has attracted various organisations ranging from the Fortune 500 companies, small and medium enterprises, educational institutions to news bureaus to form their place in Singapore's business landscape. So why follow the footsteps of those who have established successful businesses? Why set up your business in Singapore? Why Singapore?

Here is Top 3 reason why Singapore is a great place to set up your business.

1. A Favourable Business Climate

According to the Ministry of Trade & Industry (MTI), there is an estimated 6,000 Multi National Corporations (MNCs) in Singapore. Many of these MNCs have chosen Singapore as the prime location of their Asia Pacific headquarters due to its positive business climate. For example, the World Bank's Doing Business 2009 Report ranked Singapore as the world's easiest place to do business, ahead of New Zealand, United States and Singapore's closest competitor, Hong Kong. The EIU Country Forecast published in February 2008 also rated Singapore as having the best business environment in Asia Pacific and third in the world. These rankings by independent bodies are reflective of the Singapore Government's efforts in providing efficient public sector services that support the private sector growth.

2. Highly Educated Workforce

Singapore boasts one of the most educated workforces in the world. Literacy rate stands at a formidable 96%. 89.6% of resident non students aged 25-39 have secondary or higher qualifications. A further significant testament to the huge importance placed on education, the Singapore Government invested S$7,298.1 million in education in 2008. This comes up to 25.5% of total government operating expenditure, making education the second highest expenditure after security and defence. In addition, Singapore's two long established universities, the National University of Singapore (NUS) and Nanyang Technological University (NTU) also rank favourably on various university ranking surveys.

3. World Class Transportation System

Singapore's Changi International Airport has three heavily used terminals serving over 80 international airlines flying to more than 190 cities in 160 countries. Changi International Airport also handles more than 4,500 arrivals and departures weekly, 37.7 million passengers and 1.85million tonnes of air freight in 2008.

With the high cost of owning private transportation, public transportation is efficient, frequent and spans every far reaching corner of the island. Singaporeans flock to the 70 railway stations of the Singapore's Mass Rapid Transit (MRT) system which has a daily ridership of 1.564 million. The two public bus companies with a fleet of 3,600 single and double decker air-conditioned buses transport nearly 3.12 million daily passenger trips safely to 295 routes islandwide.

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