In this article, I am willing to explain why I wrote previous article of “Efficient Portfolio of Assets: Application of Markov Chain”. The reasons are as follows:
1) As you can see, the most crucial thing to apply the model of Markov Chain for the transactions in finance is to assume the constant rate for Risk and Expected Return. In fact, key factors are to be fixed them. But how can we secure a constant rate for risk and expected return? It can be done by injecting the money as fuel. Let me bring you a real example about the transactions of Crude Oil as an asset during the period of 24 hours on May 7, 2010 as follows:
Crude Oil Price
May 7, 2010
Hour
Minute
Second
Pr (USD)
Ra
11
43
19
75.41
12
1
20
76.18
1.02%
12
14
32
75.23
-1.25%
12
55
30
76.04
1.08%
23
40
35
75.41
-0.83%
Where we have:
Real Price (USD) = Pr
Expected Price (USD) = Pe
Return Rate (%) = Ra
Expected Return (%) = Re
Referring to above mentioned, we have variable return rate on each exact time. If we want to have the constant return rate (Re), the Expected Prices (Pe) will be changed as follows:
Pr
Pe
Re
75.41
76.18
76.18
1.02%
75.23
76.96
1.02%
76.04
76
1.02%
75.41
76.815
1.02%
In fact, in the staring of deals, the price is $75.41 and after the first transaction, the return rate will be revealed by the price of $76.18. If we want to control and have a constant returning rate, we should take the action as follows:
We have formula of return rate:
Re = (Pe -76.18) / 76.18
Regarding to above table, to fix expected return rate and to have a constant Re, we have two states as follows:
-Sometimes Pr > Pe: Our strategy in action will be the injection and investment of the money on others assets to fall down the real prices
-Sometimes Pr < Pe: Our strategy in action will be the injection and investment of the money on Crude Oil asset to increase of the real prices.
Of course, this is a game and maybe the application of the Game Theory will help us to find the best analysis. Because we have the limited internal resource and are not be able to purchase so many numbers of the shares to increase or decrease of the share prices (Which asset is the better to buy? How much percentage should we buy?).
Application of the Game Theory after PEST, Industry and SWOT analysis will guide us to find how much percentage of the shares and which ones should be purchased in which the total action will be affected on Pr and Pe.
As the result of this model, ......
You can review the continuation of this article on below link:
http://emfps.blogspot.com/2011_10_30_archive.html
1) As you can see, the most crucial thing to apply the model of Markov Chain for the transactions in finance is to assume the constant rate for Risk and Expected Return. In fact, key factors are to be fixed them. But how can we secure a constant rate for risk and expected return? It can be done by injecting the money as fuel. Let me bring you a real example about the transactions of Crude Oil as an asset during the period of 24 hours on May 7, 2010 as follows:
Crude Oil Price
May 7, 2010
Hour
Minute
Second
Pr (USD)
Ra
11
43
19
75.41
12
1
20
76.18
1.02%
12
14
32
75.23
-1.25%
12
55
30
76.04
1.08%
23
40
35
75.41
-0.83%
Where we have:
Real Price (USD) = Pr
Expected Price (USD) = Pe
Return Rate (%) = Ra
Expected Return (%) = Re
Referring to above mentioned, we have variable return rate on each exact time. If we want to have the constant return rate (Re), the Expected Prices (Pe) will be changed as follows:
Pr
Pe
Re
75.41
76.18
76.18
1.02%
75.23
76.96
1.02%
76.04
76
1.02%
75.41
76.815
1.02%
In fact, in the staring of deals, the price is $75.41 and after the first transaction, the return rate will be revealed by the price of $76.18. If we want to control and have a constant returning rate, we should take the action as follows:
We have formula of return rate:
Re = (Pe -76.18) / 76.18
Regarding to above table, to fix expected return rate and to have a constant Re, we have two states as follows:
-Sometimes Pr > Pe: Our strategy in action will be the injection and investment of the money on others assets to fall down the real prices
-Sometimes Pr < Pe: Our strategy in action will be the injection and investment of the money on Crude Oil asset to increase of the real prices.
Of course, this is a game and maybe the application of the Game Theory will help us to find the best analysis. Because we have the limited internal resource and are not be able to purchase so many numbers of the shares to increase or decrease of the share prices (Which asset is the better to buy? How much percentage should we buy?).
Application of the Game Theory after PEST, Industry and SWOT analysis will guide us to find how much percentage of the shares and which ones should be purchased in which the total action will be affected on Pr and Pe.
As the result of this model, ......
You can review the continuation of this article on below link:
http://emfps.blogspot.com/2011_10_30_archive.html