Into the Unknown
In many cases, we need to deal with nonlinear situations, e.g.: product pricing decision, inventory, portfolio optimization. Above all, the purpose is to find a balance between tradeoffs. Usually non-linear programs are more general than the linear programs. Formulating non-linear program is usually easy because you rarely use weird constraints; but its optimization would be…
Statistics: Arts and Sciences Statistics is the subject that encompasses all aspects of learning from data. We are talking about tools and methods to allow us to work with data to understand that data. Statisticians apply and develop data analysis methods seeking to understand their properties. Researchers and workers apply and extend statistical methodology. Statistics…
Banks There are sorts of 2 issue arise when we are thinking about banks: There is a link between the solvency and the liquidity. Shadow banks. Balance sheet of a shadow bank may looks like below, and this model has became a dominant one in this world. Assets Liabilities Residential mortgage-backed securities (RMBS)Interest rate swap…
Determinants can tell us whether a matrix has an inverse, and more importantly it can help us solve the eigenvalue problems. The eigenvalue problem is another way to look at a square matrix in terms of scalars called eigenvalues, and vectors called eigenvectors. Determinants If there is inverse to the matrix of A, you can…
A few quality tools often used in Six Sigma: Flow charts and process maps are often the first step to understanding our processes. Checksheets are quick, easy, flexible tool for collecting data. Histograms are often the first representation of our data beyond the numbers. Pareto charts are used to prioritize problems or root causes. Cause…
English Legal System Common law system means that the decisions of judges in courts are of central importance in making the law. The earlier court decisions by higher courts are binding on judges who decide later cases. There are also other sources of English law, most importantly Acts of Parliament (or called statutes), European Union…
The definition of quality boils down to how well we serve the needs of our customers. Six Sigma is both a quality management philosophy and a methodology focuses on reducing variation, measuring defects and improving the quality of products, processes and services. The purpose of Lean is to maximize customer value while minimizing waste. Using…
A vector space consists of a set of vectors (column matrices) and a set of scalars (real numbers), which is closed under vector addition and scalar multiplication. For example, assuming u, v are 3-by-1 matrices; a, b are real numbers; w = a u + b v is a 3-by-1 matrix. Linear independence A set…
Sole Proprietorship and General Partnership These are the 2 most fundamental forms of business entities. They are the only 2 forms of businesses you don’t need to register something with the state. Sole proprietorship One person engaged in business for profit Pro:Easy and cheep to create, no double taxation, owner has complete control Con:Unlimited personal…
Matrix is a rectangular array of numbers. In an m*n matrix, m stands for the number of rows, n stands for the number of columns. When m or n equals to 1, we have row vectors or column vectors, respectively. Addition and Multiplication Adding two matrices (with the same size) is just adding each of…
Integer programming is generally from linear programming but allowing you to have integer variables, which means you may restrict the values of your variables to be integers. There are some problems linear programming is not suitable but integer programming can be helpful, for example: setup cost / time, facility location, machine scheduling, vehicle routing. All…
Liquidity What is Liquidity and what is a liquidity security is very hard to define in practice. Liquid security can be traded very quickly (quick execution), has very little price impact (low slippage), can be bought and sold in large quantities (deep order book). There are 2 ways to measure liquidity: Trading cost function which…
The financial statements are a manifestation of accounting, which is what we use to prepare proper financial statements. Accounting is fundamentally about measurement, which is the assigning of numerals or other symbols to present the magnitude of an attribute of a phenomenon. Phenomenon represents an object of interest. Attribute represents the characteristics of the phenomenon….
It takes long for ideas to develop. We might be excessively fearful or unwillingly to change. Risk management has a history of thousands years, it is a technology that has been very slow to develop. There is an inherent conservatism and mistrust of new financial arrangements. Financial innovation is a pillar of our civilization. People…
Securitization Securitization is the process of constructing new securities from the cash flows generated by a pool of underlying securities. The economic rationale behind securitization is that it enables the construction of new securities with a broad range of risk profiles. A board range of investors may therefore be interested in these new securities even…