PhilosophyMagazine

From—Bek—To—Martin—Klein—Subject—Proposal for Consulting Work—20 Dec 2004

Canadian Government Manifesto

Caption
Wisdom begins with the definition of terms.
—Socrates

Letter

I offer this letter as a follow up to my letter of 28 November 2004 in which I set forth a scientific pathway for introducing the natural laws of the universe into Canadian schools and society.  This letter expands on that idea by introducing portfolio theory in what I call The Bernoulli Model.  The Bernoulli Model is a sophisticated realization of portfolio theory designed with the hope of becoming a universal standard for business, education and government.  I am offering my consulting services whereby I would make myself and my material available to both the federal and provincial government.  

Your organizations may be among the thousands of organizations around the world that are facing a barrage of changes and challenges in the global environment.  Most would agree that growth and sustainability in this evolving environment are largely contingent upon efficiently managing both value creation and the risk associated with value creation.  This concept of risk-reward efficiency was first introduced by Harry Markowitz as portfolio theory in 1952.  The Bernoulli Model is an advanced application of portfolio theory that shows the same coherent storyboard for all organizational risk factors within a stylized, accessible Microsoft Excel frontend environment.  Please see The Bernoulli Architecture and The Bernoulli Storyboard below and on philosophymagazine.com at Enclosures (28 November—20 December 2004).  The benefits of portfolio management and The Bernoulli Model include the capacity for:

          Portfolio optimization and cost savings
          Expanded definitions of both risk and reward
          Comparability between risk factors and organizational units
          Consolidated forecasting and risk management intelligence
         Greater internal credibility when calculating the cost of capital 

My proposal is to develop The Bernoulli Model and the physics theories with finance and physics professors as well as with high school teachers and other government agents.  I would make myself available to meet one-on-one or in groups.  I would make myself available to produce material for all government agents including senior government agents and government agents working at the CBC.  I would also continue developing philosophymagazine.com for the benefit of philosophers and scientists worldwide.

My value proposition lies in offering a low-risk, high-reward approach to contributing towards managing change in different organizational areas.  I propose that I receive a monthly consulting fee of $2,500 from each of the federal and provincial governments for a total of $60,000 per year.  For reference, I have set forth two letters and fifteen essays as links to my philophymagazine.com website.  I will be contacting your offices in a few weeks.

Sincerely,
Christopher Bek

The Bernoulli Architecture

Delphi Program	The Delphi program allows for the input of organizational values which then guides the decisionmaking process.  The basic Delphi value is represented by a confidence level describing the maximum allowable downside change in portfolio value—ie. VaR.  Advanced Delphi values include utility translations and objectives relating to financial, strategic, operating and competition.
Forecasting	The process of forecasting produces not only estimates outcomes but also estimates of uncertainty surrounding outcomes.  Advanced forecasting methods include forward curve analysis, option price analysis, intertemporal riskmodeling, expert opinion, Bayesian analysis, neural networks and event riskmodeling.
Integration	In addition to the basic closed-form method involving the two-moment normal distribution, the Bernoulli Model also employs Monte Carlo simulation along with the four-moment the Camus distribution in order to capture and integrate the full spectrum of heterogeneously distributed forecasts of outcomes and uncertainty.
Optimization	Optimization algorithms search risk-reward space in order to determine the optimal set of decisions subject to Delphi constraints.  Closed-form optimization algorithms include linear programming while open-form methods include hill-climbing and genetic algorithms.
Optimized Portfolio	The optimized portfolio represents the raison d’être of portfolio theory.  Portfolio theory brings together the consequences of a varied set of uncertain components.  The Bernoulli Model employs sensitivity analysis or stress-testing algorithms to insure optimal portfolio robustness.
Historical Data	Historical data includes market rates, forward rates, option rates and production data—both historical and current.  In addition, portfolio accountability analysis is fed back into the model along with the other historical data in order to essentially make the forecasting process self-aware.
Exposure Data	Exposure is simple the initial asset value exposed to change.  For example, five barrels of oil at $40 per barrel equals $200 of exposure.  A long position is has positive exposure while a short position is negative.  Exposure data also includes exposure dynamics particularly relevant to risk components like credit risk.
Expert Opinion	Expert opinion is particularly useful when historical data is unavailable or unreliable.  The Bernoulli Model integrates expert opinion into the forecasting process that uses Bayesian analysis to estimate uncertainty surrounding forecasts.  The model also provides experts with regular follow-up performance reports.
Event Scenarios	One of the first event risk studies was conducted in 1933 to examine the effects of stock splitting on price.  Event riskmodeling is an advanced form of forecasting that uses decision trees in order to see how specific scenarios might play out.  The approach is well suited to contingency planning.
Comparability Analysis	While the primary function of portfolio theory is to bring together all uncertain components into a single view, the secondary function is to provide comparability between components.  The Bernoulli Model uses the complimentary principle in the form of the null and alternative hypotheses.
Accountability Analysis	The nineteenth century saw the inauguration of management accounting for managing the efficient conversion of raw materials into finished products.  The Bernoulli Model is designed to manage the efficient conversion of uncertain information into organizational value.

The Bernoulli Storyboard

The Bernoulli Model presents the same consistent storyboard for all organizational risk factors.  The display parameters are on the top while the valuation parameters are on the left.  Below the valuation parameters is the component Bernoulli Moment Vector (BMV) while on the right side of the charts is the portfolio BMV.  If the three charts on the left of the storyboard are the components or ingredients in a loaf of portfolio bread, the three charts on the right are the different ways of slicing up the bread.  The light blue is the null paradigm—green is the alternative paradigm—dark blue is the common between the two paradigms.  Chart V1 delineates the risk factor exposure to change in value—eg. five barrels of oil at $40 per barrel equals $200 of exposure.  Chart V2 captures the component forecast distributions for two of the components.  Chart V3 shows the correlation between changes in value of components—ie. a correlation of one means factors move in lockstep, zero means no correlation.  Chart V4 illustrates first-order risk management by contrasting risk (ie. VaR) with risk exposure limits (ie. Delphi).  Chart V5 captures the portfolio forecast distributions and demonstrates the standardized Bernoulli paradigm frame (ie. –/+ six-sigma).  Chart V6 illustrates second-order risk management or efficiency analysis by contrasting value creation against the risk associated with value creation.

Quotations

I do my best thinking in a warm bed.
—René Descartes

We can never see around our own corner.
—Fredrick Nietzsche

People only see what they are prepared to see.
—Ralph Waldo Emerson

Genius is merely the art of generalizing and choosing.
—Eugène Delacroix 

Paradigm shifts are not unpredictable, just unthinkable.
—Peter Bernstein

Mozart is too simple for beginners and too difficult for experts.
—Vladimir Horowitz 

The definition of risk is that more things can happen than will happen.
—Peter Bernstein

You think when you understand one, you understand two, because one and one is two—but do you understand and?
—Jalal al-Din Mohammad Rumi

Descartes had a very clear idea of the type of reader he was trying to reach—that of the cultured public—the ladies of the salon rather than the pedants of the university.
—FE Sutcliffe

The violent reaction to the recent development of modern physics can only be understood when one realizes that the foundations of physics have started moving—and that this motion has caused the feeling that the ground would be cut from science.
—Werner Heisenberg

Some men never seem to grow old.  Always active in thought, always ready to adopt new ideas, they are never chargeable with foggyism.  Satisfied, yet ever dissatisfied, settled, yet ever unsettled, they always enjoy the best of what is, are the first to find the best of what will be.
—William Shakespeare

Modern man has acquired the willpower to carryout his work proficiently without recourse to chanting, drumming or praying.  He is able to translate his ideas into actions without a hitch, while primitive man was hampered by fears and superstitions at each step along the way.  Yet in maintaining his creed, modern man pays the price in a remarkable lack of introspection.  He is blind to the fact that, with all his rationality and efficiency, he is possessed by powers beyond his control that keep him restlessly on the run.
—Carl Jung

In 1952 a young graduate student named Harry Markowitz studying operations research demonstrated mathematically why putting all your eggs in one basket is an unacceptable strategy and why optimal diversification is the best one can do.  His revelation touched off an intellectual movement that has revolutionized Wall Street, corporate finance and decisionmaking of all kinds.  Its effects are still being felt today.
—Peter Bernstein

You have the look of a man who accepts what he sees because he is expecting to wake up.  And you are here because you know something.  What you know you can’t explain, but you feel it.  You’ve felt it your entire life.  That there’s something wrong with the world.  You don’t know what it is, but it’s there, like a splinter in your mind driving you mad.  It is the world that has been pulled over your eyes to blind you from the truth.  Like everyone you are a slave.  You were born into bondage, born into a prison you cannot smell or taste or touch—a prison for your mind.
—Morpheus from the 1999 movie Matrix

Copy

Honourable Beverley McLachlin	Chief Justice of the Supreme Court	Ottawa, Ontario
Honourable Sharon Carstairs	Leader of the Senate	Ottawa, Ontario
Honourable Adrienne Clarkson	Governor General of Canada	Ottawa, Ontario
Honourable Stephen Harper	Leader of the Opposition	Ottawa, Ontario
Honourable Gary Mar	Minister of Alberta Health and Wellness	Edmonton, Alberta
Mr David Suzuki	Scientist, CBC Inc	Toronto, Ontario
Mr Peter Mansbridge	Chief Correspondent, CBC News	Toronto, Ontario
Ms Sonya Savage	Lawyer, Randal Jarvis Law Office	Strathmore, Alberta
Ms Brigitte Vanherzeele	National Library of Canada	Ottawa, Ontario
Mr François Jubinville	Privy Council Office	Ottawa, Ontario
Mr Nigel Lloyd	Executive VP, Natural Science and Engineering Research Council of Canada	Ottawa, Ontario
Dr Harvey Weingarten	President and Vice-Chancellor	University of Calgary
Dr RB Hicks	Department Chair, Department of Physics	University of Calgary
Dr Helmy Sherif	Department Chair, Department of Physics	University of Alberta
Dr Ivan L’Heureux	Department Chair, Department of Physics	University of Ottawa

Profile

Christopher Bek is a mathematician, actuary, philosopher, scientist and writer—and is a superior spreadsheet, database and riskmodeling craftsman.  He has consulted to the top executives of one of the largest companies in Canada—and has made presentations relating to the philosophy and science of risk management in Houston and New York.  Chris founded Risk Management Services in 1995 dedicated to helping executives develop scientific management practices that allow organizations to properly serve the shareholders, the stakeholders and society in the community.

          Excellent analytical, mathematical modeling and writing skills.
          International experience in the United States and the Caribbean.
          Wide-ranging actuarial valuation experience including corporate, casualty and pensions.