George Yuan, Soochow University & BBD Inc.

The Dynamics of Stochastic Incentive Effect for “U” Shape Theory for SMEs under Bigdata Framework

在金融科技大数据框架下对中小企业特有的“U”形现象理论框架建立

Abstract

In this paper, based on Higgs which is our Hologram engine under the bigdata, we establish the Dynamics of Stochastic Incentive Effect for “U” Shape Theory owned by SMEs (Small and medium-sized enterprises) by applying the stochastic resonance through the establishing nonlinear SDE to describe the dynamic behaviors of bilateral partnership system.

The aim of our talk is to discuss a new quantitative method and the associated prototype system to address the issue how the venture capital incents partners especially associated with partnership success, what roles the internal/external risks play respectively, and by how to avoid risk resonance and create portfolio strategies of introducing venture capital and optimizing the portfolio risk in the practice.

In another way, if taking the enterprise as the target (or say the partners), we like to describe the mechanics for venture capital finance in an environment by combining investment associated external and internal risk with consideration of capital-product switching mechanics - the “back and forth conversion of two states” (which are due to partnerships between multiple sides that share goals and strive for mutual benefit are ubiquitous both between and within the enterprises, and competition and cooperation are the fundamental characterize in partnership systems). In order to do so, we use “asymmetric bistable Cobb-Douglas utility” as the tool to describe the two states ( actually we can also use some other kinds of utility function, too), then we build the new model called “nonlinear stochastic differential equation to describe the dynamical behaviors of bilateral partnership system in the presence of periodic capital-product switches and stochastic fluctuations” (called “ an over-damped non- linear Langevin equation”) to study when the “back and forth conversion of two state” could reach the “best” in terms of Stochastic Resonance (SR) by introducing three new concepts below for the measurements of the system (for enterprise):

1) “output signal-to-noise ratio (SNR)”,

2) “stationary unit risk-return (URR)”, and

3) “incentive risk”.

These three new concepts can be classified as two categories: systematic risk, and bilateral risk.

In this way, we are able to establish the general framework for the mechanics of enterprises, in particular, to successfully explain the so-called “U” phenomenon for SMEs, the key business behavior of SMEs (from the practice in China) which mean that more external cooperators many not be better, this is against the intuition and traditional understanding (this might be one of biggest discovery for the SME’s study under the framework of Fintech by using bigdata method), which is also called “U” Shape phenomenon for SMEs first time in this area.