Friday, March 14, 2008

Business Analytics and Financial Markets Liquidity Issues

The news that Bear Sterns needs liquidity assistance from JP Morgan Chase and the Federal Reserve was predictable using off-the-shelve predictive analytics software. For those who are engaged in financial markets analytics let me suggest that instead of using Bear Sterns as your sampling data (before applying in to the entire dataset), use instead the Carlyle Fund data as your market for predictions. This data is less noisy and would help you determine the ratio of mortage based secutirites: total capital under management to determine risk in liquidity.

Also, please look at the other variables (i.e., geography, diversification, currency hedges, etc.) to determine what constitutes a robust liquidity scenario. In other words, invert the scenario and analyze the driving factors. Let me suggest the creation of multidimensional vectors and combine them with cluster analysis so you can separate the clusters of data and clarify the driving factors. This is a great opportunity to bring potential solutions to the executives.

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