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To: Tom_ who wrote (5435)	8/4/2000 6:25:47 AM
From: TobagoJack	Read Replies (1) \| Respond to of 6020

The blow off will happen when this high math stuff gets applied ... people never learn the easy way: QUOTE from Nikkei Higher mathematics finding applications in financial world Companies back research into fluctuation theory, Complex Systems Foreign-exchange dealers operate in a global market so complex and fast-moving that researchers are turning to fluctuation theory to analyze market movements. Japanese companies have started showing an interest in higher mathematics and Complex Systems as dramatic advances in computing pave the way for utilizing mathematical and scientific theories in analyzing and predicting economic phenomena. Hideki Takayasu, senior researcher at Sony Computer Science Laboratories Inc., has been investigating the uses of fluctuation theory in determining the optimum timing of currency-market intervention, jointly with the Bank of Japan. Fluctuation theory was originally developed to analyze heat-induced fluctuations of atoms and molecules. But Takayasu and his fellow researchers believe it can be used to analyze fluctuations of foreign-exchange rates. Encouraged by successes in simulations, the researchers are gaining confidence they can find a formula that makes market interventions by central banks more effective. Hidden rules Complex Systems theory deals with the hidden rules that govern a complex phenomenon as a whole rather than deconstructing the phenomenon and analyzing individual elements as most conventional approaches do. This relatively new science evolved from the study of natural phenomena, but it is now widely used to analyze economic activities and social changes. The first Complex Systems course in Japan began last spring with the establishment of Future University-Hakodate. Japanese companies' interest in Complex Systems is apparent from the fact that Honda Motor Co., Toyota Motor Corp., Hakuhodo Inc. and Dentsu Inc. are among the sponsors of the Santa Fe Institute in the U.S. The institute is widely regarded as being at the forefront of the study of Complex Systems. Finding out what is possible with Complex Systems is the main purpose of Honda's sponsorship, an official at the Japanese automaker said. Honda thinks Complex Systems could be useful in the development of cars in the future, the official said. Being an advertising company, Hokuhodo's interest is different. The company is hoping Complex Systems can be applied to identify the birth of hit consumer products scientifically. Financial engineering is another example of the use of mathematics and science in the business world. At the Center for Research in Advanced Financial Technology of the Tokyo Institute of Technology, Assistant Professor Hiroshi Shirakawa is working with Toshiba Corp. and Sanwa Bank to develop what they call a "cyber financial system." When completed, the cyber system will be capable of automatically assessing lending risks based on the would-be borrower's balance sheet, profitability and other such data, and of determining the appropriate amounts and interest rates of corporate loans. The first commercial-level cyber financial system is expected to appear as early as next year. Shirakawa and others are hoping their research will lead to the establishment of an Internet-based financing market for small and midsize businesses. In addition, the newly established Research Center for Advanced Economic Engineering at the University of Tokyo conducts research in the field of financial engineering. Lectures on the subject are also offered at Kyoto University's faculty of economics. Many students of commercial applications of Complex Systems or financial engineering look to the U.S. for the lead. Some Japanese financial intuitions, however, are getting inspiration from an unlikely domestic source. Nippon Steel Corp. has started offering consulting services as a way of utilizing its renowned risk-evaluation/management system, which it developed through long experience in steel production. The service has already attracted some 60 companies in the financial industry alone since the system is applicable to risk-evaluation and management of financial products. Steel plants have a whole range of mathematical and engineering wisdom, said Yoshio Iwahashi, deputy manager of Nippon Steel's electronics and information-systems division. Derivatives model Mathematics and science in Japan are not lagging, the Tokyo Institute of Technology's Shirakawa maintains. In fact, the Black & Scholes Model, widely used for financial derivatives, was developed based on the mathematical theories of Kiyoshi Ito, professor emeritus at Kyoto University. Japan's challenge lies in making better use of such theories and findings in commercial ventures. UNQUOTE