Контрольная работа по английскому языку

GLOBALISATION

The butterfly effect concept has become important in the finance world as globalization

continues to increase and capital markets connect. Volatility in one small area of the international

markets can grow rapidly and bleed into other markets, and a hiccup in one corner of the international

markets can have global consequences. Improvements in technology and wider access to the Internet

has increased the degree to which international markets influence each other. This has led to more

episodes of extreme market volatility.

The butterfly effect has become well-known in popular culture, and the concept has clear

applications to finance. It and chaos theory may provide a partial explanation for the unpredictability of

capital markets.

The phrase “the butterfly effect” was first coined during a scientific meeting in 1972 Scientist

Edward Lorenz gave a talk on his work regarding weather prediction models. The phrase suggests that

the flap of a butterfly’s wings in Japan could create a small change in the atmosphere that might

eventually lead to a tornado in Texas.

Lorenz studied how small differences in initial values led to large differences in weather models

at the Massachusetts Institute of Technology. In 1961, he had entered an initial condition in a weather

model as 0.506, rather than the precise number of 0.506127, which resulted in a completely different

and unexpected weather pattern. In 1963, he wrote a paper on this concept, titled “Deterministic

Nonperiodic Flow.” The butterfly effect concept shows how difficult it is to predict dynamic systems,

such as weather and financial markets. Study of the butterfly effect has led to advances in chaos theory.

Capital markets go through alternating periods of calm and storminess. However, they are not

always chaotic, and the shift between calm and chaos is often sudden and unpredictable. Some believe

that these concepts of chaos theory can be used to understand how financial markets operate.

Markets tend to grow bubbles that eventually pop with drastic consequences. Financial bubbles often

grow because of positive feedback. When investors make money during a rise in the financial markets,

other observers think the investors must have made a smart decision, which leads the observers to

invest their own money in the markets. The result is more buying and stock prices going higher. The

positive feedback loop leads to prices beyond any logical or justifiable level. The loop eventually ends,

and the last investors in are left hanging with the worst positions.

The same concept can explain volatile bear markets. The markets can suddenly shift due to

outside factors, which causes investors to pay attention only to negative news. Initial selling leads to

more selling as market participants liquidate their positions. The negative feedback loop tends to

accelerate quickly, often resulting in a market full of undervalued stocks.

Prominent scientist Benoit Mandelbrot applied his work in fractals in nature to financial

markets. He found that examples of chaos in nature, such as the shape of shorelines or clouds, often

have a high degree of order. These fractal shapes can also explain chaotic systems, including financial

markets. Mandelbrot noted that asset prices can jump suddenly with no apparent cause.

Many in the markets tend to dismiss the extreme events that occur less than 5% of the time.

Mandelbrot argued that these outliers are important and play a significant role in financial market

movements. Traditional portfolio theory tends to underestimate how often these high-volatility events

occur. While his fractals cannot predict price movements, he argued that they could create a more

realistic picture of market risks.