Proactive Structural Derivatives Pricing for Global/China Corporate Governance Operations Simulation Analysis and Early Warning, Prevention Int’l Finance, Corporate Governance Conference Dec NTU, Finance Institute, Taipei, Taiwan Macro-economic Control, Assets Prices Mechanism, for Proactive Corporate Governance OSA Early Warning Dr Warren Huang, ( 黃華南博士 ) OSA Global Strategic Management website: / Fenglan Zhang Zhejiang University

Lecture Summary Proactive Asset Prices and Corporate Governance Operations Simulation Analysis (OSA) What is OSA? And its Accomplishments. What is wrong with current corporate governance and internal auditing control Proactive Structural Dynamic Asset Prices and Corporate Governance New generation CPA/CFA/CFO corporate governance decision analysis training, Corporate scandals cycle economic, capital markets, asset bubble boom/bust cycles. Country Risks Macro-economic control OSA Economic, Banking, Finance, Enterprises reform, privatization IPO Prices Housing Prices Bubble, Interest Rates Derivatives Mechanism, Scandal Cycles OSA Oil, Energy, Derivatives Prices Bubbles and Scandals Cycles Mechanism OSA

Lecture Summary Proactive Corporate Governance Operations Simulation Analysis (OSA) IT Demand, Expansion Bubbles and Scandals Mechanism OSA Proactive Strategic Investment Banking for Corporate M/A Scandals Early Warning OSA Proactive Market Risks OSA: Global/China Stock indices futures, derivatives price bubbles corporate scandal cycles early warning Proactive Inflation, Interest rate, Derivatives Price Risks, Bond yield simulation, scandals cycle early warning Daily real time Dow Jones Stock Index futures OSA Daily real time Hang Seng Stock Index futures OSA Daily real time Nikkei Stock Index futures OSA Conclusion & Recommendation

What is wrong with current corporate governance and internal auditing control Despite China new accounting, auditing guideline, security law and US COSO and Sarbanes-Oxley act requiring independent directors, internal auditing committee tracking, control auditing function and performance Current board and internal auditing control are not knowledge to monitor and control complicated fast changing structured finance based cost, financial, derivatives accounting scandals and risks, tricks: A. Loop holes in accounting cost/ tax, security law structures B. Off balance sheet commodity, financial futures, derivatives trading and hedging C. Speculation investment banking IPO, Merger/ Acquisition Poor internal auditing and corporate core business process unit daily integration to meet independent and transparency requirement

What is OSA and its Accomplishments Dr. Warren Huang has over 35 year develop, implemented structural dynamic simulation, optimization for US Mobil and China/ Taiwan, Asian Oil companies board directors oil, gas upstream/downstream performances,achieve sustainable profit dream come true Inspired by Prof Nash turning numbers into equation, he pioneered Nobel Prize idea ; two master hands controlling global economy, finance, capital market equities, bond, housing, commodities, financial futures asset prices:information knowledge base development Out of ( daily Wall Street Journals, Business Week, trading data, web market, economic technical analysis, Monte Carlo, Risk Metric analysis fail to track asset prices. He Trained thousands Taiwan, Tsinghua, Tunghai, Peking, Tsinghua, Fudan, Zechiang, University students, apply his Ph.D thesis Moon-landing guidance and control to challenge the unknown future in thousands structural dynamic models development, implementation. 20 years information knowledge base, He patented “ Improve Process by OSA” in US and 82 countries, 1980, published thousands articles 100 million copies on Taiwan and China government, banking, finance, investment daily news papers, and on his patented Proactive structural oil price on US Oil & Gas Journal predicted global oil, gas, currency, interest, stock futures prices since 1980 He lectured China, Taiwan, US 15 cities ( Beijing, Shanghai, Taipei, San Francisco Silicon Valley) TV, radio, OPEC petroleum ministers, executives China/global strategic investment risk management workshops to 30 million investors, banking finance executives. He predicted years/month ahead of Asian Financial crisis 1997, US asset bubble burst 2000 and current China/US rate hikes, 2006 oil price from 55 to 78, gas and record commodities prices on China CEO workshops and his website (visited by 4 million global central banks, banking, finance, corporate executives, universities.

What, Why, How, and Timing of Proactive Structural Dynamic Asset Prices and Corporate Governance OSA Huang gave up current statistical, Monte Carlo CAPM approach 30 years ago, pioneered Proactive structural dynamic asset price OSA ( Operations Simulation Analysis) through two master hands controlling global economy and asset prices, patented 1983 in US, predicted months ahead last 20 years macro-economic control impact on daily asset prices and associated cost, financial, derivatives accounting, stock prices, tracking, identify month ahead accounting statements, derivatives, investment banking speculation scandals replacing current reactive statistical CAPM models which fail to predict the dynamic impact on asset prices and scandals

Zhang completed New generation CPA/CFA/CFO decision analysis training: decisions supported Corporate Governance auditing team and business process units OSA integration Corporate government OSA teams integrate internal auditing and core business units Proactive structural dynamic equities, bond, commodities, financial futures prices and financial, derivatives accounting, tracking, scandals, risks early warning CPA financial, derivatives accounting CFA equities, investment banking Internal auditing scandals, risks control CG committee Core investment, marketing, supply chain financial accounting report to CFO

Corporate scandals cycle and economic, capital markets, asset bubble boom/bust cycles Banking, Finance, Energy, IT corporate scandals cycles coincide with the boom and bust of capital markets (stock indices), its associated boom and bust of industrial (housing, energy, IT) asset prices bubble cycles Macroeconomic control impact on stock indices Boom and Bust cycle Industrial demand, asset prices boom and bust cycle Cost, financial, derivatives accounting, tracking, restatement (inflated earning, sales loss) scandal cycles

Country Risks Macro-economic control OSA :Monetary, Economic, fiscal policy, WTO impact on inflation, GDP growth Excessive money supply, DFI resulted soaring commodity, asset prices and falling US dollar push inflation and GDP higher export Monetary policy Foreign direct investment Business demand Fixed investment Consumer demand Macro-economic inflation and GDP growth currency Commodity prices Energy asset bubble scandals (Enron, China aviation )

Proactive investment banking: Economic, Banking, Finance, Enterprises reform, privatization MBO and IPO Prices OSA Privatization, board members organization, debt restructuring. Maximize corporate/plant wide cost, financial accounting tracking, operating profit margin through cost reduction and products, market innovation develop, implemented by goal, mission, performance oriented strategic (top management), and executive Operations Simulation Analysis teams maximize China, US oil, gas corporate performances and IPO stock prices in MBO/IPO prices =F (listed market investor sentiment, and corporate profit margin) = F (Shanghai/Shenzhen index, corporate profit margin) China oil/gas ADR shares prices ( SINOPEC, PetroChina, CNOOC IPO other market prices =F (China market investor sentiment, US market investor sentiment, and corporate profit margin) = F ( Dow Jones index, Shanghai/Shenzhen index, corporate profit margin)

Housing Prices Bubble, Interest Rates Derivatives Mechanism, Scandal Cycles OSA Housing, properties prices bubbles are fueled by low interest credit money supply, stock markets wealth gain which induce greedy corporate scandals Money supply growth Low mortgage interest Mortgage Securitization Credit derivatives Housing, mortgage Derivatives corporate scandals US Fannie Mae, Taiwan Land dev Shanghai city scandals Stock market wealth stock indices gain Housing, Land, Stock prices bubbles, wealth gain OSA

Oil, Energy, Derivatives Prices Bubbles and Scandals Cycles Mechanism OSA Excessive money supply, rate, tax cuts and cold weather stimulate excessive consumer, business demand for oil, gas, fuel demand, Derivatives Prices bubbles which induce greedy corporate scandals Excessive money supply Excessive rate tax cuts Consumer Gasoline demand, price Business, Factory Fuel Demand Extreme cold weather Home heating oil demand Crude oil, gas, gasoline, heating oil Futures, stock prices bubbles Oil, gas, energy derivatives trading loss and scandals Enron,China Aviation Oil Black-Schole call/put option price

IT Demand, Expansion Bubbles and Scandals Mechanism OSA IT, communication downstream demand bubbles are fueled by low interest credit money supply, stock markets wealth gain which induce greedy corporate merger/acquisition inflate sales, earning speculate stock prices scandals Excess money supply Excessive rate, tax cuts Equities wealth gain Excessive consumer demand Excessive business demand Technical, market Competition Soaring demand for IT upstream/downstream products and stock price Inflate sale, earn- ing to speculate stock prices WCOM, Apple, UMC Behavior Finance soaring investor senti- ment pushing stock index new high

Proactive Strategic Investment Banking for Corporate M/A Scandals Early Warning OSA Cut pre-merger, joint venture costs by 50 % in pre-merger speculation and scandals in early warning Stock prices plunged more than % gained in pre-merger speculation. Post merger integration, profit creation performances, Pre-merger goal setting, target margin analysis Pre-merger financial accounting OSA Investors sentiment stock index Pre-merger target profit margin stock prices performances Post merger integration strategy, financial accounting profit margin, stock price performance Cost, Financial accounting tracking scandals early warning

Proactive Market Risks OSA: Global/China Stock indices futures, derivatives price bubbles and trading volume, corporate scandal cycles early warning tracking 40 stock indices derivatives prices, from excessive money supply, lower interest rates, strong currency, hot money inflow, investor sentiments (trading volume) and scandals cycle Excessive money supply Excessive rate, tax cuts Strong currency induced FDI Consumer demand Business demand Dow Jones index investor sentiment Shanghai-Shenzhen Index, Dow Jones, Nikkei, Hang Seng Taiwan Dax, LFT 40 stock indices future prices, trading volume investors sentiment OSA Black-Schole or OSA call/put option price OSA Corporate scandals cycle follow stock indices boom and bust Barring brother speculate on Nikkei option loss, Guanxia on China A index, Fannie Mae on Dow peak China Trust on Taiwan index peak

Proactive Inflation, Interest rate, Derivatives Price Risks, Bond yield simulation, scandals cycle early warning Soaring asset, commodity prices, falling currency excessive money supply led to continued China/US inflation, credit tightening led to rising interest rates and bond yields, betting on the wrong direction of interest rate as central bank stop rate hikes, resulted scandals Fannie Mae, Freddie Mae in hiding billion dollar interest rate derivatives loss. Excessive money supply Excessive rate tax cuts Stocks, housing wealth bubbles Excess consumer, business demand resulted inflation Soaring oil, commodity prices Rate hikes, credit tightening, followed by rate cuts Black-Schole or OSA derivatives calculation Betting on the wrong direction of interest rates scandals Fannie, Freddie Mae Behavior finance soaring housing, stock price bubble

Daily Dow Jones Index Future Simulation OSA forecast of daily Dow Jones index copyright Dr. Warren Huang 10/06 US Fed money supply growth %

Daily Hang Seng index future OSA Hong Kong money supply growth Hong Kong money supply growth%

OSA Tokyo Nikkei Index Forecast copyright Dr. Warren Huang 10/06 Yen Daily Japanese Yen

Conclusions, Recommendation Huang’s proactive OSA simulators predicted 6 month ahead in last 20 years global/China monetary, economic, fiscal policy, WTO impact on macro-economic, capital market assets, derivatives prices, financial crisis, credit, market, operational risks and corporate scandals cycles Zhang’s experience in integrating these simulators into new generation CPA/CFA/CFO training tracking ahead the corporate scandal will be valuable to banking, finance, enterprise corporate governance internal auditing control and government oversight board, securities, banking, insurance regulation, supervision decision tools, to avoid current reactive statistical asset prices resulted trillion dollar loss and billion dollar share holder interest damages.