Temperatura finansowego oscylatora Gąsiorowskiego-Bagsika

Jaką temperaturę miał  finansowy oscylator 
Gąsiorowskiego-Bagsika?

(RePEc:sla:eakjkl:4 23-IV-2001)

Edward W. Potrowski

Instytut Fizyki Teoretycznej, Uniwersytet w Białymstoku

Lipowa 41, 15424 Białystok

email: ep@alpha.uwb.edu.pl

J.Składkowski

Instytut Fizyki, Uniwersytet Śląski

Uniwersytecka 4, 40007 Katowice

email: sladk@us.edu.pl

    4.   Oscylator Gąsiorowskiego i Bagsika

 

Temperature of Gasiorowski - Bagsik financial Oscillator?

What was the temperature of the 

Gasiowski - Bagsik financial Oscillator?

(RePEc:sla:eakjkl:4 23-IV-2001)

Prof. Edward W. Potrowski

Institute of Theoretical Physics, University of Białystok

Lipowa 41, 15424 Białystok, Poland

email: ep@alpha.uwb.edu.pl

and 

J.Składkowski

Institute of Physics, University of Silesia,

Uniwersytecka 4, 40007 Katowice, Poland

email: sladk@us.edu.pl

(Received)

We argue that the recently published by Przystawa and Worf model of the Gasiorowski - Bagsik financial Oscyllator is oversimplified and unrealistic. We propose and analyse a refined explanation of this rare financial phenomenon. We have found an example that results in profitability about 45,000 times bigger than that of the Przystawa and Wolf model.

PACS numbers: 02.50.-r, 02.50.Le, 05.70.-a

4. Gasiorowski-Bagsik oscillator

Oscillator without complex numbers

Interest-rate parity relationship

Interest-Rate Parity Relationship (IRP) is a formula which relates the time dependence of the exchange rates of two different currencies to the difference of the interest rates in the corresponding countries. If the IRP relationship is violated, then an arbitrage opportunity arises. It is not unusual for some governments and/or central banks, pursuing some particular political or/and economical goals, to interfere with IRP, and manipulate the exchange rates or interest rates or both. Such manipulations inevitably lead to massive flows of currencies in one way or the other. A particularly drastic example of such an operation can be found in the recent history of Poland, where, in the year 1990, the Government decided to freeze, for a longtime (it lasted for about two years), the foreign currency exchange rate on the level of 1 US$ to ca: 10,000 zloty, while keeping the bank interest rates many times higher, even in the order of magnitude, than those in the Western banks. Based on that there is a possible scheme of exploiting these opportunities, consisting of repeated chain of steps: a foreign loan—exchange of currencies—deposit-loan—exchange deposit, etc.

This simple scheme led to many enormous fortunes made by various groups of individuals, of which the best known examples in Poland were the so-called "The Gasiorowski-Bagsik Oscillator" and "the FOZZ-gate". To demonstrate the efficiency of those financial speculations we carried out model calculations assuming that the difference of the interest rates between the rates for deposit rates in Polish banks and those in the West amounted to 70% p.a. throughout the year 1990.

Interest rates 
The interest rates are to be determined each month and at the beginning for the month of January 1990 it is established at 36% per month. To be on the safe side, we propose to consult an offcial document issued by the Polish National Bank. The Decree no. 1989 of the President of the Polish National Bank of the 30th December 1989 orders that since the 1st of January 1990, the interest rates should be 36% per month. We have tracked down all changes of the rates during the year 1990 and they are presented in Table 1. 2 Fig. 1 represents the value of 1 zloty deposited on the 1st of January 1990 and subjected to the rates in Table 1. It is seen from this figure that 1 zloty deposited at the beginning of 1990 increased to 2.23 by the end of that year. This corresponds to an e:ective rate of 134% p.a. In fact, real deposits were at lower rates but the rate 80% p.a. which we assumed for simplicity was not an exaggeration. Incidentally, a deal that Andre Gasiorowski and Boguslaw Bagsik struck with the Polish State Bank PKO BP by the end of 1990, when he deposited 600 billion zloty (equivalent of 60 million US$) for 5 yr, had been made on assumption that current interest rates were on a level of 80% p.a..

"Temperature" of the Gasiorowski - Bagsik Oscillator 
In their article, Prof. Edward Piotrowski and Prof. Skladkowski developed a thermodynamic analogy of financial market games (Black-Scholes Formula for Options Trading). They applied that apparatus to our Gasiorowski-Bagsik Oscillator model assuming the difference of the interest rates to be 30%. Each loop of the Bagsik Oscillator led to riskless profit and everyone who had an understanding what is the meaning of a huge deviation from the IRP, as was the case of Poland, was in a position to exploit it and make a huge profit. Consider Gasiorowski-Bagsik’s deal mentioned above. By the end of 1990 Gasiorowski-Bagsik had deposited an equivalent of 60 million US$ for 5 yr. With the interest rates at a level of 80% p.a. it would lead to the multiplication of the deposited capital to about 50 times. With a bank certificate to the amount equivalent to 3 billion US$ one could play any financial game one pleased. But suppose that the interest rates at that time were not 80% but 40% as Piotrowski and Skladkowski would prefer. In such a case a certificate possible to obtain from the Polish State Bank would amount to not 3 billion US$ but to a figure 10 times lower. How big a loan one could obtain for a state bank certificate amounting to 300 million US$? Whatever be the answer to this question every loop of the "oscillator", i.e.: exchange—deposit in Poland—exchange, would lead to 30% p.a. gain. In fact, the inventors of the "oscillator" revealed their secrets themselves. They also gave it an imaginative name: "B.G. Moneytron" (B&G for Bagsik and Gasiorowski). In their words it consisted of repeated "loan-deposit oscillations within the framework of an international arbitrage". In the same place they boast that this "moneytron" resulted in magnification of the invested capital by 18 000% within 1 yr.

P&S 1.93 Oscillator
Prof. Edward Piotrowski and Prof. Skladkowski (P&S) come up with a sophisticated scheme of making fortunes in the realities of the beginning of the last decade in Poland, which they call "sbO 1.93". The essence of their "oscillator" was to exploit hyperinflation of those years, which, according to their data, amounted to nearly 600% for non-edible goods and to nearly 800% for services. Speculators could then, say at the beginning of the considered period, purchase suffcient amount of goods and/or services, by making due payment deferred till the end of the period, make enormous profits. By repeating such "oscillations" a number of times, one could generate a profit by fivve orders of magnitude ("45 000 times") bigger than the one that could be generated within the framework of the above-described "B.G. Moneytron". P&S suggest that "one could induce directors of state-owned firms to enter such formally legal but tragic in effects contracts". We were discussing in our former article is that an access to the "B.G. Moneytron" was open to everyone who had an understanding of what the interest-rate parity meant and to a substantial loan or credit. No conspiracy (e.g. no "inducement" of directors, etc.) was needed. It is worth to note that the latter could be exploited only in special circumstances of hyperinflation, the arbitrage based on marked deviation from the IRP relationship has been, and still is, used more often all over the world. The case of the recent crisis in Argentina may serve as another good example.

Concluding remarks
Problems of previously closed economies, like those of the former communist countries, are abundant. Incompatibility of financial mechanisms operating there with those normal for free markets made them exposed to easy games, to various forms of arbitrage, which people of these countries had no means of understanding and therefore were unable to oppose effectively. Some of such games were simple enough and to understand them no functional analysis, complex numbers or statistical physics are really needed. We were trying to show that the so-called Gasiorowski-Bagsik Oscillator belonged to the latter category.

_______________________________________________
Black-Scholes Formula for Options Trading The original formula for options trading became too limited in its scope of investments and ability to leverage. In 1973, the spirit of the world moved on Fischer Black (deceased), Myron Scholes and Robert Merton, and led them to develop the 1973 "Black-Scholes Model for Options Trading" This complex pricing model revolutionized how options could be used. It expanded the scope of investments to include a multitude of financial instruments, and dramatically increased the user's leveraging ability. In other words, more fractional reserve type debt could be created out of nothing to buy or sell investment assets, which further enhanced the elite's ability to manipulate the markets. The Black-Scholes Model is flexible enough to do almost anything with. When applied to the advances in computer processing and telecommunications, this formula virtually created a multi-trillion dollar investment market out of thin air.

References:

[1] M. Baxter, A. Rennie, Financial Calculus, Cambridge University Press, Cambridge, 1996.
[2] B. Connolly, The Rotten Heart of Europe: The Dirty War for Europe’s Money, Faber & Faber, London, Boston, 1995.
[3] M. Dakowski, J. Przystawa, Via bank i FOZZ, Antyk, Warszawa, 1992 (in Polish).
[4] J. Przystawa, M. Wolf, Physica A 285 (2000) 220–226.
[5] E.W. Piotrowski, J. Skladkowski, Physica A 301 (2001) 441–448.
[6] E.W. Piotrowski, J. Skladkowski, Acta Phys. Pol. B 32 (2001) 597.
[7] http:/info.fuw.edu.pl/donosy/archiwum/
[8] Zarzadzenie Prezesa Narodowego Banku Polskiego nr 1989 z 20 grudnia 1989, Dz.Urz. NBP.89.7.15.
[9] J. Diatlowicki, Polityka 25 (1994).
[10] A. Kwiatkowska, T. Rudomino, Kto sie boi Art. B? Polska Oficyna Wydawnicza BGW, Warszawa, 1997 (in Polish), p. 59.

Black-Scholes Formula for Options Trading

The Black-Scholes formula is perhaps the most frequently used formula with embedded probabilities in human history. It shows how six variables -- the current underlying asset price (S), the option strike price (K), the option time-to-expiration (t), the riskless return (r), the underlying asset payout return (d), and the underlying asset volatility (s) - work together to determine the value of a standard option. Fischer Black and Myron Scholes worked together at MIT in the late 1960’s and early 1970’s to solve the problem of option valuation. They looked at it from two angles. First, they used an equilibrium model (the capital asset pricing model); second, they used a hedging argument proposed by their colleague Robert Merton, who had also been working on the problem with Paul Samuelson. Both approaches led to the same differential equation, known from physics as the 'heat equation'. Its solution is the formula that has since then borne their names.

Professors Robert Merton and Myron Scholes were winners of the 1997 Nobel Prize in Economics for a new method to determine the value of derivatives. The Black-Scholes Model is flexible enough to do almost anything with. When applied to the advances in computer processing and telecommunications, this formula virtually created a multi-trillion dollar investment market out of thin air. This complex pricing model revolutionized how options could be used. It expanded the scope of investments to include a multitude of financial instruments, and dramatically increased the user's leveraging ability. In other words, more fractional reserve type debt could be created out of nothing to buy or sell investment assets, which further enhanced the elite's ability to stimulate the markets.  Years before, this concept was used in 1990 by Andre Gasiorowski and Bogusław Bagsik to develop "BG Moneytron" system and use it in financial operation called "Oscillator" created by them in Poland.

Snowgold Option Calculator

Robert's Online Option Pricer

1997 Nobel Prize in Economics

Fischer Black

	Prof. Fischer Black (1938 - 1995) 1973 - Published "The Pricing of Options and Corporate Liabilities" 1984 - left MIT to work for Goldman Sachs & Co.
	Prof. Myron Scholes 1973 - Published "The Pricing of Options and Corporate Liabilities" 1997 Nobel Laureate in Economics for a new method to determine the value of derivatives Currently works in the derivatives trading group at Salomon Brothers
	Prof. Robert Merton 1997 Nobel Laureate in Economics for for a new method to determine the value of derivatives

Financial Markets versus Debt

TOOLS  Since margined investing is limited to 50%, other devices had to be created, which would expand the elite's manipulating power in both the scope of investments and amount of leverage. This birthed the futures and options contracts, which are different in application, but the same in principle. While originally developed for price discovery and risk aversion, they have both evolved into tools for manipulating investment values.

Futures is a contract that allows an investor to buy or sell a commodity (gold, orange juice, coffee, etc.) or a financial instrument (government bond, foreign currency, stock index, etc.) on varying margins at a predetermined price. It allows the buyer to control much more investment than he has actual money for. The influx of margined futures buying creates an artificial demand for that commodity or financial instrument, which drives the price artificially high. On the other side, the influx of margined futures selling creates an artificial supply of that commodity or financial instrument, which drives the price to an artificial low. The operative word on both sides of a futures contract is "artificial." This allows the financial establishment to use their vast financial resources in the futures market to manipulate investment values, up or down, according to a predetermined purpose. 

Options differ from a futures contract in that the option buyer only purchases the "right' to buy or sell the "underlying" security (stock, stock index, commodity, bond, etc.) at a fixed price before a specified date. For this "right," the options buyer pays a fee called a premium (like a down-payment), which is forfeited if the buyer does not exercise the option before the expiration date.Options were originally used to hedge the financial risks that farmers faced from big swings in the price of their crops. In the beginning this was a good thing, bur man's love of money caused him to pervert that purpose by using their leveraging ability for get-rich-quick speculation in those markets. Many options traders made fortunes, while at the same time many lost fortunes. However, in the hands of the financial elite, it becomes a tool that enables them to manipulate markets with debt created by FRB. 

A Forward Contract is a completed contract that actually purchases or sells a specific amount of a commodity or financial instrument at a price specified now, with delivery and settlement at a specified future date.'' Although it differs slightly from futures and options contracts, both futures and options are often used to either hedge the investor from potential risk or w multiply the effects of the forward contract.

Derivatives are financial contracts whose value is derived from the underlying or "notional value" of the borrowed investment. The high degree of leverage associated with these financial instruments (50%-90%) makes them highly volatile and subject to huge losses in the blink of an eye. By April 1994, the "notional value" of the derivatives market had grown to $ 13 trillion. But what is important to understand is that the worldwide investment market (stocks, bonds, mutual funds, currencies, money markets, etc.) only totaled about $48 trillion at that time. This meant that over 27% of the global investment market had been leveraged in the derivatives market and was at risk of collapse.

Up to this point, only higher-risk securities were used to conjure up derivatives, but as the supply of the higher risk securities had been borrowed up, derivative dealers were forced to borrow securities from mutual funds, money markets, bank deposits, and other safer investments. Derivatives also showed up in numerous quasi-governmental agencies. Agencies such as the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and the Student Loan Marketing Association, and many others quickly became major users of these exotic derivatives. If these derivatives get into trouble, the U.S. government is expected to bail out investors at the taxpayer's expense. This means that even the safest investments, such as money markets, low-risk securities, and taxpayer-backed government investments are being gobbled up by derivatives dealers.

Black-Scholes Formula for Options Trading

The original formula for options trading became too limited in its scope of investments and ability to leverage. In 1973 Fischer Black (deceased), Myron Scholes and Robert Merton developed the 1973 "Black-Scholes Model for Options Trading". This complex pricing model revolutionized how options could be used. It expanded the scope of investments to include a multitude of financial instruments, and dramatically increased the user's leveraging ability. In other words, more fractional reserve type debt could be created out of nothing to buy or sell investment assets, which further enhanced the elite's ability to manipulate the markets. The Black-Scholes Model is flexible enough to do almost anything with. When applied to the advances in computer processing and telecommunications, this formula virtually created a multi-trillion dollar investment market out of thin air