Masalah Sistim Sosialis

Akibat krisis ekonmomi yang terjadi belakangan ini, banyak yang berpikir bahwa sistim ekonomi sosialis mungkin lebih baik dari sistim kapitalis. Dilain pihak, banyak juga yang tidak setuju karena, menurut mereka, sistim sosialis mengandung kelemahan yang sangat fundamental : Hasrat untuk lebih maju jadi melempem. Akibatya, pertumbuhan ekonomi bisa jadi melempem juga. Artikel dibawah ini mengilustrasikan dengan baik kelemahan fundamental sistim sosialis tsb:

As the late Adrian Rogers said, “you cannot multiply wealth by dividing it.”

An economics professor at a local college made a statement that he had never failed a single student before, but had once failed an entire class.
That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on Obama’s plan.”

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.
After the first test, the grades were averaged and everyone got a B.

The students who studied hard were upset and the students who studied little were happy.

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride, too, so they studied little. The second test average was a D!

No one was happy..

When the 3rd test rolled around, the average was an F.

The scores never increased as bickering, blame, and name-calling all resulted in hard feelings, and no one would study for the benefit of anyone else.

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
Could not be any simpler than that.

Musik dan Matematika (Music and Math)

Adakah hubungannya? Menurut studi yang dilakukan oleh California State University – Fullerton, hubungannya positif. Menurut studi tersebut, nilai hasil ujian SAT (Scholastic Aptitude Test, ujian masuk Universitas di AS) bagian matematika bisa digunakan untuk memprediksi apakah seorang calon musisi akan sukses atau tidak.
Hasil studi ini mungkin tidak terlalu mengejutkan. Seperti kita ketahui, Albert Einstein adalah seorang pemain Violin yg baik. Ahli Fisika lainya, Edward Teller, juga seorang pemain piano yang mahir. Donald Knuth, ahli Computer Science, juga terkenal sebagsi pemain organ dan composer yang hebat. Dan lainnya.

Makanya waktu anak saya mulai keranjingan main gitar, tidak seperti kebanyakan orang tua lainnya, saya kok tenang2 saja. Memang sih, seperti yang ditakutkan kebanyakan orang tua, pelajaran anak bisa terganggu. Tapi, dalam hal anak saya, dia basically a straight ‘A’ student (terutama MAtematika), or close to that. Walau memang ada les tambahan, di rumah praktis dia jarang belajar. Selama dia masih bisa mempertahankan nilai above average ini, kenapa saya harus komplain? Apa lagi main gitarnya lumayan bagus, terutama untuk anak yang baru berumur 11 menjelang 12 tahun. At least dia bisa menghibur saya dengan memainkan lagu2 lama seperti Burn – Deep Purple atau Stairway to Heaven – Led Zepplin, disamping tentunya favorit dia sekarang : Avenged Seven Fold. Not bad! Not bad at all!

Pernah nge-band sih, tapi sayang vocalistnya kurang baik (lihat video link dibawah ini):

Unholy Confession
London
Synyster Solo

Heal The World

Paradox in Game Theory: Losing Strategy That Wins

Cukup mind boggling. 2 strategi yg teoritis adalah strategi yg akan kalah (expected return negatif), jika dikombinasikan bisa menghasilkan strategi yg teoritis akan menang (expected return positif).
—————————————————————————————————–
A Spanish physicist has discovered what appears to be a new law of nature that may help explain, among other things, how life arose out of a primordial soup, why President Clinton’s popularity rose after he was caught in a sex scandal, and why investing in losing stocks can sometimes lead to greater capital gains.

Unfortunately, these tactics won’t work at the casino.

Called Parrondo’s paradox, the law states that two games guaranteed to make a player lose all his money will generate a winning streak if played alternately.

Named after its discoverer, Dr. Juan Parrondo, who teaches physics at the Complutense University in Madrid, the newly discovered paradox is inspired by the mechanical properties of ratchets — the familiar saw-tooth tools used to lift automobiles and run self-winding wristwatches. By translating the properties of a ratchet into game theory — a relatively new scientific discipline that seeks to extract rules of nature from the gains and losses observed in games — Dr. Parrondo discovered that two losing games could combine to increase one’s wealth.

Paul Krugman vs. John Cochrane

By Alex Parets (Seeking Alpha)
September 14, 2009

Paul Krugman stirred up a lot of conversation in the blogosphere and in the Ivory Tower recently with his NY Times article on the state of macroeconomics. Will has done a very good job covering Krugman’s piece and John Cochrane’s response for this blog. I wanted to throw my unsolicited two cents out there and engage the pieces that have been written.

I agree with Will and John Cochrane that Krugman is using his recently awarded Nobel Prize, along with his tenured, endowed Princeton professorship and his NY Times blog and column to push a partisan agenda and has been quite misleading in many of his writings as of late (which Will also covered here). Many of the claims/arguments he puts forward in the NY Times article are not well informed, incoherent, at times disingenuous and some even border on personal attacks on well-intentioned economists.

However, I do believe that if he wants to turn himself into a money-making political hack, that’s his business. I don’t see anything wrong with him using his column and Nobel fame to convince others that Keynesian economics is the answer to all of the world’s problems; I just wish he was more honest as he goes about it.

Cochrane does a good job calling out Krugman for the mistakes in his article and taking him to task for personally attacking other economists. He also provides a very good defense of mathematical economics, model creation and assumption building.

His arguments for using advanced mathematics as a way of checking and proving logical arguments is quite good. He’s right in that there are things we can’t do with prose that can be done quite well with math, economics being one of them.

Danareksa Siapkan 3 Reksa Dana Baru

Kamis, 10/09/2009 05:51 WIB
Angga Aliya ZRF – detikFinance

Jakarta – PT Danareksa Investment Management berencana menerbitkan tiga produk reksa dana terproteksi dan dua reksa dana saham baru mulai bulan depan hingga hingga akhir tahun 2009.

Menurut Presiden Direktur Danareksa Investment Managements John D Item, anak usaha PT Danareksa (Persero) itu sudah mendapat tawaran dari tiga nasabah yang menyatakan siap membeli ketiga produk tersebut.

“Totalnya mencapai Rp 2 triliun. Sekarang kita lagi nego yield dan harga,” katanya usai buka puasa bersama di Gedung Danareksa, Jalan Medan Merdeka Selatan, Jakarta, Rabu (9/9/2009) malam.

Salah satu produk yang akan diluncurkan bulan depan itu bernama Danareksa Melati Optima XI, dengan jangka waktu tiga atau lima tahun. Penyertaaan minimal untuk produk tersebut sebesar Rp 1 juta.

“Kita harapkan bisa dapat dana lebih dari Rp 500 miliar dari produk itu,” ungkapnya.

Ia mengatakan, reksa dana terproteksi masih memegang peranan besar dalam total dana kelolaan anak usaha perusahaan plat merah itu, yaitu sebanyak 55 persen.

Hingga akhir Agustus, total dana kelolaan perseroan mencapai Rp 5,2 triliun. Dengan adanya tambahan dana dari ketiga produk ini, ia optimistis dana kelolaan perseroan bisa meningkat sampai Rp 7 triliun di akhir tahun 2009.

Selain reksa dana terproteksi, pihaknya juga berencana menerbitkan dua produk reksa dana saham yang diperkirakan meluncur bulan November 2009.

Averting the Worst

By PAUL KRUGMAN
Published: August 9, 2009

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. The nation has lost 6.7 million jobs since the recession began. Once you take into account the need to find employment for a growing working-age population, we’re probably around nine million jobs short of where we should be.

And the job market still hasn’t turned around — that slight dip in the measured unemployment rate last month was probably a statistical fluke. We haven’t yet reached the point at which things are actually improving; for now, all we have to celebrate are indications that things are getting worse more slowly.

For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss.

A few months ago the possibility of falling into the abyss seemed all too real. The financial panic of late 2008 was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators — world trade, world industrial production, even stock prices — were falling as fast as or faster than they did in 1929-30.

But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now.

In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.

The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.

Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.

All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution.

And aren’t you glad that right now the government is being run by people who don’t hate government?

We don’t know what the economic policies of a McCain-Palin administration would have been. We do know, however, what Republicans in opposition have been saying — and it boils down to demanding that the government stop standing in the way of a possible depression.

I’m not just talking about opposition to the stimulus. Leading Republicans want to do away with automatic stabilizers, too. Back in March, John Boehner, the House minority leader, declared that since families were suffering, “it’s time for government to tighten their belts and show the American people that we ‘get’ it.” Fortunately, his advice was ignored.

I’m still very worried about the economy. There’s still, I fear, a substantial chance that unemployment will remain high for a very long time. But we appear to have averted the worst: utter catastrophe no longer seems likely.

And Big Government, run by people who understand its virtues, is the reason why.

Dari NYT

The Bernanke Market

We won’t get real growth until Congress and Treasury get policy right.
* JULY 16, 2009

By ANDY KESSLER

I remember once buying the stock of a small company and I couldn’t believe my luck. Every time my fund bought more shares the stock would go up. So we bought even more and the stock kept climbing. When we finally built our full position and stopped buying the stock started dropping, ending up at a price below where we started buying it. We were the market.

Just about every policy move to right the U.S. economy after the subprime sinking of the banking system has been a bust. We saved Bear Stearns. We let Lehman Brothers go. We forced Merrill Lynch, Wachovia and Washington Mutual into the hands of others. We took control of Fannie and Freddie and AIG and even own a few car companies, pumping them with high-test transfusions. None of this really helped.

We have a zero interest-rate policy. We guaranteed bank debt. We set up the Troubled Asset Relief Program (TARP) to buy toxic mortgage assets off bank balance sheets. But when banks refused to sell at fire sale prices, we just gave them the money instead. Dumb move. So we set up the Public-Private Investment Program to get private investors to buy these same toxic assets with government leverage, and still there are few sellers. Meanwhile, the $1 trillion federal deficit is crowding out private investment and the porky $787 billion stimulus hasn’t translated into growth.

At the end of the day, only one thing has worked — flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn’t put money directly into the stock market but he didn’t have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn’t go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.

The good news is that Mr. Bernanke got the major banks, except for Citigroup, recapitalized and with public money. June retail sales rose 0.6%. Housing starts jumped 17% month to month in May and will likely be flat for June. Second quarter GDP may be slightly up. And he was successful in spreading a “green shoots” psychology throughout the media. But the real question is, now what? Government interventions are only meant to light a fire under the real economy and unleash what John Maynard Keynes called our “animal spirits.” But government dollars can’t sustain growth.

Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along. It’s the ultimate Enforcer.

In mid-May, Mr. Bernanke’s outlook seemed to change. Maybe he didn’t approve of the sharp housing rebound — like we need more houses! Maybe he saw inflation in commodity prices — oil popping to $72 from $35. Or, more likely, he finally realized that he was the market and took his foot off the money accelerator, as evidenced in the contracting monetary base (see nearby chart). Sure enough, things rolled over — the market dropped 7.5% from its peak, oil prices dropped almost 17%, and even gold has lost some of its luster. But in July, the Fed started buying again and the market rallied.

Can the U.S. economy stand on its own two feet without Mr. Bernanke’s magic dollar dust? Eventually, but apparently not yet. Unemployment stubbornly hit 9.5% in June, according to the Bureau of Labor Statistics. Housing prices are still dropping, albeit at a slower pace, and foreclosures are still rampant.

But I think what really bothers the market is that the structural problems that got us into trouble in the first place still exist. We took the easy way out and, with the help of Treasury Secretary Tim Geithner’s loose “stress tests,” swept banking problems under the carpet. We waved off mark-to-market accounting and juiced bank stock prices to help them recapitalize, but all those toxic mortgage assets on bank balance sheets are still there as anchors on lending. All the pump priming and stock market flows didn’t get rid of them.

Hats off to Mr. Bernanke for getting the worst behind us. He’ll be pressured politically to keep pumping out dollars, but he should resist the urge. The stock market will ignore his dollars if it doesn’t believe they’ll turn into real profits. Green jobs and government health-care clerks do not make a productive, sustainable economy. That can only come from innovative companies with access to growth capital. The stock market won’t turn bullish until it sees that type of economy.

Again, when it’s clear that you are the market you have to stop buying and begin tackling the hard stuff. By not restructuring banks, by not getting bad loans off bank balance sheets, by not standing up to the massive increases in government debt crowding out private capital, the Fed and Treasury are holding back real economic growth.

Mr. Kessler, a former hedge-fund manager, is the author of “How We Got Here” (Collins, 2005).

From WSJ.

Ekonomi Bukan Fisika

Jelas beda. Molekul, atom pergerakannya setidaknya bisa di track secara pasti ataupun secara probabilistik (quantum mechanics).  Interaksi manusia dengan lingkungannya (ekonomi, sosial, alam, dsb) adalah suatu sistim yang sangat kompleks sehingga saat ini adalah naif kalau kita mengharapkan interaksi kompleks ini bisa diterjemahkan dalam bentuk sistim ekuilibrium saja.

Economics and the Theory of Finance – It Ain’t Physics!
Rahul Bhattacharya
December 23, 2008

Recently, some economists, a few very well known amongst them, got very upset when they read our recent post on our site: Quantity Theory of Money – the Fisher-Friedman Illusion!.They wrote to us with lengthy explanation of Irving Fisher’s thesis on the equation of exchange and defending the name and the turf of the celebrated economist.

To all those people we have only one answer: It ain’t physics!

Of all the crises confronting us today, none is greater or more devastating than the crisis that is shaking the foundations of the Economic Theory and the Theory of Finance. As the titans of the banking and investment banking lie humbled and as thirty years of a secular bull market comes to an end, the winter of 2008 is finally drawing the curtains on one hundred and fifty years of economic thinking, which was predicated on the notions of equilibrium and linear dynamics.

The world, as economists are realizing, does not come wrapped in differential calculus.

Hundred fifty years of obsession with equilibrium and linear dynamics (CAPM, linear optimization, asset allocation models, Black-Scholes option pricing models) has resulted in a lot of Nobels, but pretty much nothing else

“Causality” and “correlation” are different concepts and whereas you can have “reverse causality” in financial markets and economies the notion of “reverse correlation” is not possible. How many economists understand this? Theory of probability is totally counter-intuitive and whereas one can apply probability theory and stochastic processes to quantum mechanical world in physics, it makes no sense to build models of a larger, real world of men and things based on these. If economists and financial theorists know that Economics is not physics, especially quantum mechanics, then why do they keep on applying probability theory and stochastic processes to economic systems?

In fact, economics should be studied more like electrical engineering or systems engineering. I believe Economics is an extremely complex subject, one that should borrow heavily from history, sociology, molecular biology and systems / electrical engineering.

As long as economists, and their closest cousins, the financial theorists, compete with the physicists in their usage of differential calculus, as long as economists delude themselves into thinking that they are scientists we will keep moving from crisis to crisis.

Ito Lemma Dan Ekspansi Taylor Series

Agak mirip. Yang satu untuk stochastic differential equation (Ito), yang lain untuk Ordinary Differential Equation.

Why so much fuss about Taylor Series Expansion?
Team latte
Oct 20, 2005

Taylor Series expansion is one of the most, if not the most, applied mathematical concept in financial engineering. It is a simple expansion series of any function around a small increment .

Where are higher order terms (greater than the power of three). If we ignore
the higher order terms as well as the third order term then we can write:

And in the limiting case when we have

If you carefully look at the above equation then we will see a striking resemblance
to the famous Ito’s stochastic equation, which is the basis of Black-Scholes option
pricing partial differential equation (PDE). The only difference is that in Ito’s
equation we have the term  instead of   , that is in an Ito process we have

The above equivalence has a great intuitive meaning with respect of geometric Brownian motion and asset price movement, but that is not the purpose of this article. What we wanted to show was that even without any knowledge of stochastic calculus and the corresponding Ito process one can approach the Black-Scholes option pricing PDE if one were to make the accommodation shown above. It also shows that any asset price movement, such as the movement of a bond, can be approximated by the Taylor series expansion and regardless of whether we know the exact closed form solution for the pricing of that asset, it is possible,

using first principles of differential calculus to approximate the movement of the asset over small increments of state space and time.

In keeping with our arguments above let us show you that the Taylor series expansion can be used to calculate the value of any variable with a great degree of precision and speed, which may not be possible numerically.

Say, you wanted to calculate the value of , that is eleven raised to the power of eight. Doing this manually could take you forever. Of course, you can do it in less than a second using a scientific calculator or an Excel spreadsheet. But suppose you don’t have an Excel spreadsheet (or a calculator near you) and you wanted a quick approximation of this number.

You can say that and that a small increment of   is one and therefore,
and . First we calculate the value of which is very
straightforward and simple: 100,000,000. We need to use the Taylor series to
calculate the change in value of this number around the point . (Remember
by making x = 10, we have made all our calculations very simple and that is where
the usefulness of Taylor series lies)

Now using Taylor series for calculation we get:

Thus the change in the value of the function f which is given by is:

And the value of the function is approximated as:

This is quite good an approximation given the fact that if you were to use your Excel spreadsheet then for 11^8 (eleven raised to the power of eight) you would get 214,358,881.

Barrier Option

Pernah dengar barrier option? Agak beda dengan option yang konvensional. Valuasinya juga tentunya beda dari sekedar menggunakan formula Black-Scholes. Berikut artikel mengenai produk ini.

A Probability Conundrum: First Passage time of a Brownian Motion
Rahul Bhattacharya
Jan 25, 2005

Recently we encountered a bit of a problem with the use of first passage time in our forecasting models. The problem appeared more fundamental in terms of the mathematical formulation. I asked a trader who trades currency options in a large bank in Hong Kong as to what is the probability that an asset, say a currency or a stock, which is currently trading at $100 with a historical volatility of 15% and a mean historical return of 10% will hit a barrier at $95. It took him ten seconds to plug it in his option pricing calculator the values and he gave me an answer of 57.3% (assuming the implied vol for 3 months is 15%).

I am sure this is correct given the fact that he had calculated the probability of hitting the barrier by using the pricing model of a one touch digital option. However, when we use a different formula for the probability of the first passage time, as the problem is known, in asset forecasting models we get a different result for the probability of the asset hitting the barrier.

First passage time is a central concept in the analysis of Brownian motions with absorbing barriers. Consider a Brownian particle undergoing a one-dimensional random walk within a domain between x=0 and x=L, the boundaries being such that the particle will be reflected at x=0 and absorbed at x=L. If the particle starts from some position within the domain when will it hit the absorbing boundary for the first time? This first-passage problem in stochastic processes, in various spatial dimensions and with a variety of geometries and boundary conditions, is of longstanding interest and has ramifications and applications in diverse areas.

In simple English, First Passage Time refers to the probability of a random particle hitting and being absorbed by a barrier or a boundary. This barrier or a boundary could be the barrier of an asset price as in a barrier option, or a predetermined band such as a government determined peg rate of a currency.

Mathematically, the probability that an asset following a geometric Brownian motion will hit a barrier is given by:

Let us assume that an asset, for example a stock or a stock index, follows a geometric Brownian motion. The stock is currently at $100, the annualized volatility of the stock is 15% and the mean historical return of the stock is 10%. Then the probability that in three months time the stock will hit a barrier at $95 will be given by the above formula and is simply equal to 38.46%.

This could explain the difference – fairly large – between our result and the result that my friend got from his digital option pricing formula. Later on he used Monte Carlo simulation and yet he came up with a probability number much greater than 40%.

We believe that the formula mentioned above gives the correct probability of a stock hitting a barrier provided it follows a geometric Brownian motion with a drift equal to the mean return. This could be viewed as the real probability of hitting the barrier as opposed to a risk neutral probability measure.