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					OSA    Operations Simulations Analysis



  Proactive Structural China/Global Commodities, Financial Futures
  Derivatives Pricing Simulation and
  Risks Early Warning




                 Dr Warren Huang ( 黃華南博士)
                 OSA Int’l Operations Analysis
               OSA Global Strategic Management
     www.osawh.com/www.osaglobalstrategicmanagement.com
                     wh3928@yahoo.com/ osawhh@sina.com
                        Fenglan Zhang
                      Zhejiang University
                 flzhang0626@yahoo.com.cn


Financial Engineering and Risk Management Conference
June 11-12, 2007, Peking University, Beijing
OSA   Operations Simulations Analysis


  Outline

  A. What is Global Asset Prices OSA? And its accomplishments

  B. What is wrong with current asset pricing and risk management ?

  C. Proactive Structural Global Neoclassic Macro-economy-Financial-
     Industrial-Trade Economics Integration, Operations Simulation Analysis
  D. Proactive Structural Dynamic Equities, Debt, Housing, Commodities
     Pricing for Risks, Bubbles, Crisis Early Warning
  E. Proactive Structural GARCH
  F. Proactive Structural Housing Prices Bubble, MBS, Synthetic CDO
     Derivatives Pricing, Risks Early Warning OSA ,Oil, Energy Commodities
     Derivatives Prices Bubbles and OSA
  G. Proactive Structural Inflation- Interest Rate Risk OSA
     Proactive Structural Banking, Finance, reform, IPO, M/A ADR Prices
     OSA
OSA    Operations Simulations Analysis


  A.         What is Global Asset Prices OSA?
            And its accomplishments

      Dr. Warren Huang has over 30 year develop, implemented structural dynamic
      simulation,optimization for US Mobil and China/ Taiwan, Asian Oil companies board
      directors oil, gas upstream/downstream performances ,achieve sustainable profit.
      Inspired by Prof Nash Game Theory and Milton Friedman Demand Side Monetary
      Economics , he pioneered Nobel Prize idea. pioneered; two master hands controlling global
      economy, finance, capital market equities, bond, housing, commodities, financial futures
      asset prices based on information knowledge base development in 1983 extend to 1972 -
      2005 ( daily Wall Street Journals, Business Week, trading data, web market, economic
      technical analysis. He gave up time series, maximum likelihood, Monte Carlo Simulation and
      his 1971 PhD Thesis on Nonlinear Adaptive Kalman Filtering and online Stochastic Control of
      4 variable differential equations reactors system in the 1970’s failed to track/forecast real
      time pricing.
      He Trained thousands Taiwan, Tsinghua, Tunghai, Peking, Tsinghua, Fudan, Zechiang,
      University students, guidance and control to challenge the unknown future in thousands
      structural dynamic models development, implementation.
      20 years information knowledge base, He patented “ Improve Process by OSA” in US and 82
      countries, 1980, published thousands articles 100 million copies on Taiwan and China
      government, banking, finance, investment daily news papers, and on his patented Proactive
      structural oil price on US Oil & Gas Journal predicted global oil, gas, currency, interest,
      stock futures prices since 1980 .
      He lectured China, Taiwan, US 15 cities ( Beijing, Shanghai, Taipei, San Francisco Silicon
      Valley) TV, radio , OPEC petroleum ministers, executives China/global strategic investment
      risk management workshops to 30 million investors, banking finance executives.
      He predicted years/month ahead of Asian Financial crisis 1997, US asset bubble burst 2000
      and current China/US asset bubbles rate hikes on 2003 and 2006 oil price from 55 to 78,
      gas 9- 16 and record commodities prices on China CEO workshops and his
      www.osawh.com website (visited by 4 million global central banks, banking, finance,
      corporate executives, universities.
OSA Operations Simulations Analysis
   B. What is wrong with current macro-
        economic , asset pricing , risk management
        decisions

   Current macroeconomic inflation, GDP, financial econometric
    monetary policy, interest rate, currency, stock, bond prices forecasts
    models are based on statistical, probabilistic approach, reacting to
    past data and speculating to current news, chasing the markets,
    following the crowd, betting on the wrong side of interest rates,
    currency, stocks, derivates prices resulted trillion dollar market loss
    in global currency, financial, asset bubble burst crisis and corporate
    scandals.
   These models fail to identify the real causes and consequences, the
    structural of the problems.
    Macro and monetary econometrist fail to identify the excessive
    money supply and consumer demand, housing, wealth prices
    bubbles resulted inflationary pressure and rate hikes impact on
     equities, bond, housing, commodities, derivatives prices
OSA    Operations Simulations Analysis

  C . Proactive Structural Global Neoclassic Macro-economy-
  Financial, Industrial-Trade Economics Integration, Operations
  Simulation Analysis (OSA)

                                 Macroeconomic OSA,
                                 40 global inflation, GDP,
                                     unemployment,
                                  Consumer, business
                                        spending


                                          Strategic
    Trade economic OSA                   investment               Financial Economic OSA
 Import/export trade,contract/             and risk           Global money supply growth, daily
  Spot pricing ,trade balance,              early            real time financial markets interest
   commodity futures, price                warning           Rates ,currency, bond, stock indices
                                                                     ,financial derivatives



                              Industrial economics OSA
                         20 industrial sectors supply/demand ,
                          Price mechanism,cost/profile,stock,
                              Bond and derivatives pricing
OSA   Operations Simulations Analysis
 D. Proactive Structural Dynamic
 Equities, Debt, Housing, Commodities Pricing for
 Risks, Bubbles, Crisis Early Warning OSA (What –How –Why –
 Timing )


           Huang gave up current statistical, Monte Carlo CAPM approach
       30 years ago, pioneered Proactive structural dynamic asset price
       OSA ( Operations Simulation Analysis) through two master hands
       controlling global economy and asset prices, patented 1983 in
       US, predicted months, years ahead last 20 years macro-economic
       control impact on daily asset prices and associated
       cost, financial, derivatives accounting, stock
       prices, tracking, identify month ahead accounting
       restatements, derivatives, investment banking speculation
       scandals replacing current reactive statistical CAPM models which
       fail to predict the dynamic impact on asset prices and bubbles
OSA   Operations Simulations Analysis



    Proactive Structural IT Industry Demand, Expansion Prices
    Bubbles and Scandals Mechanism OSA


   IT, communication downstream demand bubbles are fueled by low
    interest credit money supply, stock markets wealth gain which
    induce greedy corporate merger/acquisition inflate sales, earning
    speculate stock prices scandals

                                                                   Soaring demand for
    Excess money supply          Excessive consumer              IT upstream/downstream
                                      demand                     products and stock price


      Excessive rate,
         tax cuts                                           Inflate sale, earn-     Behavior Finance
                                 Excessive business          ing to speculate     soaring investor senti-
                                      demand                    stock prices       ment pushing stock
                                                            WCOM, Apple, UMC         index new high
          Equities wealth gain

                                        Technical, market
                                          Competition
OSA   Operations Simulations Analysis


  Proactive Equities Market, Operational Risks OSA: Global/China Stock
  indices futures, derivatives price bubbles and trading
  volume , corporate scandal cycles early warning

       www.osawh.com/prod03.html tracking 40 stock indices
        derivatives prices making new high due to excessive money
        supply, lower interest rates, strong currency, hot money
        inflow, investor sentiments (trading volume) and scandals
        cycle
                                                   Shanghai-Shenzhen Index, Dow Jones,
          Excessive money                           Nikkei, Hang Seng Taiwan Dax, LFT 40
               supply                              stock indices future prices , trading volume
                               Consumer demand
                                                            investors sentiment OSA


                                                       Black-Schole or OSA call/put
            Excessive rate,
                                                            option price OSA
               tax cuts
                                 Business demand

                                                      Corporate scandals cycle follow
           Strong currency                             stock indices boom and bust
             induced FDI                            Barring brother speculate on Nikkei
                                 Dow Jones index     option loss, Guanxia on China A
                                    investor         index, Fannie Mae on Dow peak
                                   sentiment        China Trust on Taiwan index peak
OSA    Operations Simulations Analysis



      E.    Proactive Structural GARCH integration OSA



              GARCH                              OSA

       Long
       Past, historical                  Proactive Structural Macro ,
       return information                financial , industrial, trade
       data                              economic system OSA
                                         integration
 Current/today data




      Current news/                         Granger co-integration
      Squared return                         Causes and Casualty
                                                  analysis
OSA   Operations Simulations Analysis



     Monetary policy, WTO impact on inflation, GDP growth


    Increasing money supply, consumer demand, rising
     commodity, asset prices and depreciate currency push
     inflation higher
                                                   Macro-economic inflation
           export            Consumer demand          and GDP growth


       Monetary policy
                                                        currency
                                                                   Commodity prices
                                 Business demand
 Foreign direct investment
OSA   Operations Simulations Analysis


 Proactive Structural Inflation, interest rate, government,
 corporate bond yield for Interest rate risks simulation
  Rising asset, commodity prices, excessive money supply led to inflation,
   credit tightening, rising interest rates and bond yields


                                                 currency

  Consumer spending
                                                            Interest rates, bond yield

                               Inflation rates



                                                               Money supply growth
            currency            oil, commodity,
                                  asset prices
 OSA      Operations Simulations Analysis


Proactive Structural Global currency , RMB market forces prices mechanism
simulation two master hands controlling global currency
      WWW.osawh.com/currency.html tracking trade surplus/deficit, interest rate
       spread impact on last 20 years daily 40 currencies and last 12 years RMB ( 3
       to 12)
                                                Integrating into Black-Schole for
   US / basket of country                           derivatives prices hedging
    trade deficit/surplus
                                               Daily US dollar, RMB
                                         global exchange rates futures prices



 your country trade surplus/deficit   Interest rate spread between US, basket
                                                  country and yours
OSA   Operations Simulations Analysis


 Proactive, Structural Banking Securities insurance
 Regulation , credit risk early warning simulation

    Proactive equities, housing bubbles tracking, early warning
     for government regulation, banking, finance credit risks
     simulation, Value at Risks down to the portfolio price

 Equities market asset
                              Banking nonperformance credit default
     Bubble price
                              Consumer, business credit, market risks
                           Resulted market bubble burst risks simulation




  Housing market asset
     Prices bubble           Industrial sectors   Business, consumer demand
                               Asset bubbles           Sentiment bubble
OSA   Operations Simulations Analysis



 Proactive Structural Energy Prices Bubble, Risks Early Warning OSA ,
 Energy Commodities Derivatives Prices Bubbles OSA


       Excessive money supply, rate , tax cuts and cold weather stimulate
        excessive consumer, business demand for oil, gas, fuel demand, future
        derivatives prices bubbles which induce greedy corporate scandals


        Excessive money              Consumer
             supply
                                  Gasoline demand,                 Crude oil, gas,
                                         price                   gasoline, heating oil
                                                                futures, stock prices
                                        Business, Factor               bubbles
           Excessive rate                Fuel demand                                  Black-Schole
                                                                                      call/put option
              tax cuts                                                                     price
                                                               Oil, gas, energy
            Extreme cold                Home heating       derivatives trading loss
              weather                                           and scandals
                                         oil demand
                                                           Enron,China Aviation Oil
OSA   Operations Simulations Analysis


 Causes, onset, recovery of financial ,currency energy
 banking, bubble burst crisis NPL loan, Risks early warning

  Excessive money supply and hot money inflow resulted inflation, trade
   deficit currency plunge, rate hike and stocks, properties prices plunge
   and NPL loan
                                            All leading to financial, currency, bubble burst
                Strong Export growth         Crisis, recovery will begin until trade surplus
                                           currency rebound, interest rate cuts, stock prices
                                                 rebound www.osawh.com/riskm.html

          Excess money supply growth
           foreign capital
          Inflow currency appreciation
                                            Runaway inflation and interest rate hike
                                           Stock prices and consumer demand plunge

      Export decline and currency plunge

                                                          NPL Loan
OSA   Operations Simulations Analysis


  Proactive Structural China Oil ,petrochemicals
  demand, A/H,ADR, IPO prices performance simulation

     China oil upstream/downstream are well positioned, fully
      integrated follow Dr. Huang1991 speech to SINOPEC, Beijin on
      globalization, integration
      strategy, CNOOC, SINOPEC, PetroChina stock prices
      doubled , but downstream suffered by soaring oil prices) stock
      price soaring 6 times since Dr. Huang recommendation in
      Beijing workshops 2001, Taipei, 2002
                                          Oils, heating oil, gasoline ,
Consumer, business spending              petrochemical, plastics prices
                                        Profit margin, stocks simulation


            Currency
                                                               Stock
                                                               indices
                   Oil, petrochemical feedstock costs
OSA     Operations Simulations Analysis



    Proactive investment banking: Economic, Banking, Finance, Enterprises
    reform, privatization MBO and IPO, ADR Prices OSA


   Privatization, board members organization, debt restructuring.
   Maximize corporate/plant wide cost, financial accounting tracking, operating profit
    margin through cost reduction and products, market innovation develop, implemented
    by goal, mission, performance oriented strategic (top management), and executive
    Operations Simulation Analysis teams maximize China, US oil, gas corporate
    performances and IPO stock prices in

    MBO/IPO prices =F (listed market investor sentiment,
    and corporate profit margin)

    = F (Shanghai/Shenzhen index, corporate profit margin)
    China oil/gas ADR shares prices ( SINOPEC, PetroChina, CNOOC
    IPO , ADR other market prices =F (China market investor sentiment, US market
    investor sentiment, and corporate profit margin)

    = F ( Dow Jones index, Shanghai/Shenzhen index, corporate profit margin)
OSA   Operations Simulations Analysis




 Proactive Inflation, Interest rate, Derivatives Price Risks, Bond
 yield simulation, mortgage default scandals cycle early warning




          Excessive money
               supply                                               Rate hikes, credit
                                                                 tightening, followed by
                                                                         rate cuts
                                Excess consumer,
                                business demand
          Excessive rate         resulted inflation
                                                            Black-Schole or OSA
             tax cuts
                                                            derivatives calculation


                                  Soaring oil,        Betting on the wrong      Behavior finance
          Stocks, housing
                                commodity prices       direction of interest   soaring housing ,
          wealth bubbles
                                                          rates scandals       stock price bubble
                                                      Fannie, Freddie Mae
OSA   Operations Simulations Analysis

      Proactive Structural Housing Prices Bubble, MBA
      Securitization, Interest Rates Derivatives Mechanism, Scandal Cycles
      OSA


          Housing, properties MBS bubbles are fueled by low
           interest credit money supply, stock markets wealth gain
           which induce greedy corporate scandals

           Money supply growth                 Housing, Land, Stock prices
                                                bubbles, wealth gain OSA

            Low mortgage interest


                                         Housing, mortgage
          Mortgage Securitization           default models
            Credit derivatives          Derivatives mis-pricing   Stock market wealth
                                          corporate scandals
                                           US Fannie Mae,
                                                                   stock indices gain
                                                scandals
OSA   Operations Simulations Analysis



 Strategic Proactive, Structural QFII and QDII investment market
 risk management early warning
  Two master hands controlling China and global economy and
   industrial sectors profitability and stock prices for QFII/QDII
   asset allocation, wealth management investment strategy, risk
   control avoid chasing the markets trillion dollars loss
                                         Domestic and global market interest rate,
        Money supply, interest rates    currency prices, equities, commodity price
                                                     risks simulation

           Currency exchange rates


                                               Industrial sectors asset prices
              Investors sentiments
                                              bubble, profit margin simulation
OSA   Operations Simulations Analysis




  Daily Dow Jones Index Future Simulation
OSA   Operations Simulations Analysis




  Daily Hang Seng index future OSA




               Hong kong money supply
OSA   Operations Simulations Analysis




       OSA Tokyo Nikkei Index Forecast
OSA   Operations Simulations Analysis


        Wuhan steel call warrant OSA
OSA   Operations Simulations Analysis



        Wuhan steel put warrant OSA
OSA   Operations Simulations Analysis


      Crude oil future prices forecast
OSA   Operations Simulations Analysis



  Conclutions and Recommendation


   OSA simulators predicted 6 month ahead the monetary, economic, fiscal
    policy, WTO impact on macro-economic control, capital market asset
    prices to achieve sustainable profit growth and prices stability
   Monetary , economic, fiscal policy, WTO impact on China capital markets
    asset prices simulation, early warning is the key to sustainable profit
    growth supporting strategic China banking, finance, enterprises reform.
   Monetary , economic, fiscal policy, WTO impact on China capital markets
    asset prices simulation, early warning avoided trillion dollar market loss
    due to current
   Chasing the markets, speculation on technical
    charts, market, business, economic data. It provide QFII, QDII
    rational, reliable decision investment and risk management decision tools
    in asset allocation, wealth management
   Thousand strategic structural dynamic OSA models tracking China and
    global economic and daily capital market asset prices supporting China
    and global capital market decision makers through in-house
    workshops, corporate memberships and full banking, finance, enterprises
    reform, change management OSA program
  
OSA   Operations Simulations Analysis




       Conclusions and Recommendation

       Huang’s proactive OSA simulators predicted 6 months ahead in last 20
        years global/China monetary, economic, fiscal policy, WTO impact on
        macro-economic, capital market assets, derivatives prices, financial
        crisis, credit, market, operational risks and corporate scandals cycles

       Zhang’s experience in integrating these simulators into new generation
        CPA/CFA training tracking ahead the corporate scandal will be
        valuable to banking, finance, enterprise corporate governance internal
        auditing control and government oversight board, securities, banking,
        insurance regulation, supervision decision tools, to avoid current
        reactive statistical asset prices resulted trillion dollar loss and billion
        dollar share holder interest damages.