Mercado, & Osuna 1 Andrea Mercado (192676) Rafael Osuna (189895) Professor: Dr. Martin A. Negrón ANLY 515-51- R-2018/Spring - Risk Modeling and Assessment April 5th, 2018 Risks of Venezuela’s 2018 Presidential Elections 1. Introduction. Venezuela holds the world’s largest supply of crude oil which once accredited it with the richest economy in Latin America. However, the nation has been dealing with the worst economic and political crisis in the last 50 years. Particularly, the crisis hit a new level in 2015 when declining oil prices started to affect the economy of the nation aggravating the existing social and political issues. Nowadays, the nation is believed to have the world’s highest inflation with a rate greater than 2,000% in 2017 and an expected rate of 13,000% in 2018. This hyperinflation is currently causing the death of thousands of Venezuelans due to crime and the severe lack of food, medicines, services, among other commodities. The origins of this crisis can be traced back to the administration of the former president of Venezuela, Hugo Chavez, who was elected in 1998 and governed between 1999 and 2013 when he died from cancer complications. Just before passing away, Chavez personally advocated for Nicolas Maduro asking his followers to elect him as his successor. That being said, Nicolas Maduro was elected president of Venezuela in an unreliable election process in 2013. Since then, he adopted the most controversial policies in the last 18 years which has caused Venezuela to be categorized as one of the worst economies and most dangerous places in the world. Mercado, & Osuna 2 Nicolas Maduro has control over 4 out of 5 of the main Venezuelan institutions. One of them is the National Electoral Council (Consejo Nacional Electoral in Spanish) which agreed to call extraordinary presidential elections in May 2018. As a consequence of the election’s settings the opposition has decided not to participate in the process due to severe evidence of the National Electoral Council bias in favor of Nicolas Maduro and his party. However, Henry Falcon, one of the main politicians of the opposition, has decided to run against Maduro without the support of his party that refuses to be part of the process to avoid legitimizing the current government. Consequently, the international community has requested observation with no success. Maduro has extended invitation to international observers such as the UN but there has been an agreement about it due to the conditions of the process. In addition, the United States, Canada, Panama, Australia, among other countries have imposed sanctions to several Venezuela’s officials, including Maduro. The U.S. government in particularly is conducting multiple investigations, including a case related to money laundering against Alejandro Andrade, Venezuela’s former National Treasury, who has decided .

1. Mercado, & Osuna 1
Andrea Mercado (192676)
Rafael Osuna (189895)
Professor: Dr. Martin A. Negrón
ANLY 515-51- R-2018/Spring - Risk Modeling and Assessment
April 5th, 2018
Risks of Venezuela’s 2018 Presidential Elections
1. Introduction.
Venezuela holds the world’s largest supply of crude oil which
once accredited it with the
richest economy in Latin America. However, the nation has
been dealing with the worst
economic and political crisis in the last 50 years. Particularly,
the crisis hit a new level in 2015
when declining oil prices started to affect the economy of the
nation aggravating the existing
social and political issues.
Nowadays, the nation is believed to have the world’s highest

2. inflation with a rate greater
than 2,000% in 2017 and an expected rate of 13,000% in 2018.
This hyperinflation is currently
causing the death of thousands of Venezuelans due to crime and
the severe lack of food,
medicines, services, among other commodities.
The origins of this crisis can be traced back to the
administration of the former president
of Venezuela, Hugo Chavez, who was elected in 1998 and
governed between 1999 and 2013
when he died from cancer complications. Just before passing
away, Chavez personally advocated
for Nicolas Maduro asking his followers to elect him as his
successor. That being said, Nicolas
Maduro was elected president of Venezuela in an unreliable
election process in 2013. Since then,
he adopted the most controversial policies in the last 18 years
which has caused Venezuela to be
categorized as one of the worst economies and most dangerous
places in the world.
Mercado, & Osuna 2

3. Nicolas Maduro has control over 4 out of 5 of the main
Venezuelan institutions. One of
them is the National Electoral Council (Consejo Nacional
Electoral in Spanish) which agreed to
call extraordinary presidential elections in May 2018. As a
consequence of the election’s settings
the opposition has decided not to participate in the process due
to severe evidence of the National
Electoral Council bias in favor of Nicolas Maduro and his party.
However, Henry Falcon, one of
the main politicians of the opposition, has decided to run
against Maduro without the support of
his party that refuses to be part of the process to avoid
legitimizing the current government.
Consequently, the international community has requested
observation with no success.
Maduro has extended invitation to international observers such
as the UN but there has been an
agreement about it due to the conditions of the process.
In addition, the United States, Canada, Panama, Australia,
among other countries have
imposed sanctions to several Venezuela’s officials, including
Maduro. The U.S. government in
particularly is conducting multiple investigations, including a

4. case related to money laundering
against Alejandro Andrade, Venezuela’s former National
Treasury, who has decided to
collaborate with information. Nonetheless, many national and
international stakeholders believe
that economic sanctions are not enough and till this day
Venezuelans do not see a solution for
this crisis in the horizon.
That being said, the United States and several Latin American
nations are considering the
option of publicizing a humanitarian crisis in Venezuela which
would lead to a military
intervention in the country. Such possibility has awakened more
doubts about what the future
would look like for the country and its people.
With that in mind, this paper intends to create a model for
different scenarios that could
be developed after Venezuela’s elections in May 2018.
Mercado, & Osuna 3
The objective of the model will be to be answer the following
research questions:

5. a. Would the opposition participate in the elections if
negotiations lead to the
presence of international observers in the process?
b. Would the opposition participate in the elections if more
sanctions are established
against Venezuela’s officials?
c. Would there be a political change in Venezuela if Henry
Falcon is elected
President?
d. What are the most important events for a political change to
occur in Venezuela?
Lastly, the analysis would also consider the following risks:
a. If the presidential elections don’t have internal observers,
then the opposition
wouldn’t participate in the elections minimizing the probability
of a political
change in Venezuela.
b. If more sanctions are established against Venezuela’s
officials, then the
opposition wouldn’t participate in the elections minimizing the
probability of a
political change in Venezuela.

6. c. If Falcon wins the presidential elections, then Venezuela
wouldn’t have a political
change.
2. Variables description.
This paper considers the following nodes (based on events) and
nodes probability tables
defined with reasonable and supported assumptions from news
articles quoted for each case:
Mercado, & Osuna 4
P[AlejandroAndradeSpeaks] Alejandro Andrade, Venezuela’s
former National
Treasure, continues to collaborate with the U.S. government and
their investigations about
money laundering in Venezuela.
There is good evidence that Alejandro Andrade will continue
revealing important
information for further investigations about the case (El
Venezolano News, 2018).
True: .9

7. P[DEAContinuesInvestigation] The Drug Enforcement
Administration moves forward
with their investigations against Venezuela’s officials.
This event is considered to be impacted by Alejandro Andrade’s
collaboration
with the U.S. federal investigations about Venezuela. If
Andrade doesn’t
collaborate the chances of the DEA’s investigation to continue
would be smaller.
(Woody, C. 2016).
P[DEAContinuesInvestigation | AlejandroAndradeSpeaks] = .75
P[DEAContinuesInvestigation |-AlejandroAndradeSpeaks] = .55
P[DrugTraffickingProofs] The Venezuelan Government is
accused of being one of the
most important drug cartels in the world.
The events that lead to the accusation of drug traffic against the
Venezuelan
Government would depend on the DEA’s investigations. If the
DEA continues
their investigations and finds more supporting evidence, the
chances of these
accusations would be greater. (Mora, E. 2017).

8. P[DrugTraffickingProofs | DEAContinuesInvestigation] = .75
P[DrugTraffickingProofs |-DEAContinuesInvestigation] = .2
P[MoneyLaunderingProofs] Discovery of proofs of money
laundering in Venezuela.
Mercado, & Osuna 5
This event is related to Andrade’s participation in further
investigations about
money laundering in Venezuela. If Andrade’s willing to
participate, there will be
greater chances of discovery of more proofs. (U.S. Department
of Justice, 2018).
P[MoneyLaunderingProofs | AlejandroAndradeSpeaks] = .95
P[MoneyLaunderingProofs |-AlejandroAndradeSpeaks] = .45
P[InternationalSanctions] International Sanctions imposed to
the Venezuelan
government.
If further investigations identify supporting evidence of both
drug traffic and
money laundering in Venezuela, there could be greater chances
of more countries

9. issuing more sanctions to Venezuela’s officials. If the discovery
of only one kind
of proof occurs the chances of more sanctions would be smaller.
(Spetalnick, M.,
Ulmer, A., & Zengerle, P. (2018).
P[InternationalSanctions | DrugTraffickingProofs |
MoneyLaunderingProofs] =.95
P[InternationalSanctions | DrugTraffickingProofs |-
MoneyLaunderingProofs]=.65
P[InternationalSanctions |-DrugTraffickingProofs |
MoneyLaunderingProofs]=.75
P[InternationalSanctions |-DrugTraffickingProofs |-
MoneyLaunderingProofs]=.45
P[FavorableNegotiations] Negotiations for transparent
Presidential Elections in
Venezuela.
This event is related to the imposition of international sanctions
against the
Venezuelan government. If more sanctions are established, there
could be higher
chances of favorable negotiations for transparent presidential
elections in
Venezuela. (Reuters staff. 2018)

10. P[FavorableNegotiations | InternationalSanctions] = .8
Mercado, & Osuna 6
P[FavorableNegotiations |-InternationalSanctions] = .25
P[NewNationalElectoralCouncil] Establisment of a new board
for the National
Electoral Council.
This event could occur depending on the favorable negotiations
about a
transparent process for the elections. If the favorable elections
come into place,
there would be greater chances of a new board for the National
Electoral
Council. (Orozco, J. 2017).
P[NewNationalElectoralCouncil | FavorableNegotiations] = .75
P[NewNationalElectoralCouncil |-FavorableNegotiations] = .4
P[InternationalObservation] Presence of International Observers
in the Presidential
Elections in Venezuela.
This event could depend on the negotiations for a transparent
process for the

11. elections. If the negotiations occur, there would a more suitable
scenario and
higher chances of international observers in the elections.
(Dobson, P. (2018)).
P[InternationalObservation | FavorableNegotiations] = .85
P[InternationalObservation |-FavorableNegotiations] = .1
P[OppositionParticipates] The opposition decides to participate
in the presidential
elections.
This event could be related to both the establishment of a new
board for the
National Electoral Council and the participation of international
observers. If
only one of these conditions occurs, the chances of the
participation of the
opposition would be smaller. (Herrero, A. V., & Semple, K.
2018).
Mercado, & Osuna 7
P[OppositionParticipates | NewNationalElectoralCouncil |
InternationalObservation] =.9

12. P[OppositionParticipates | NewNationalElectoralCouncil |-
InternationalObservation] =.8
P[OppositionParticipates |-NewNationalElectoralCouncil |
InternationalObservation] =.55
P[OppositionParticipates |-NewNationalElectoralCouncil |-
InternationalObservation] =.1
P[OppositionWins] The opposition wins the presidential
elections.
This event would be related to the participation of the
opposition in the
presidential election. If the opposition participates in the
elections there is a fair
chance that the party will win the election. (Wyss, J. 2018).
P[OppositionWins | OppositionParticipates] = .55
P[OppositionWins | -OppositionParticipates] = 0
P[HenryFalconWins] Henry Falcon wins the presidential
elections.
This event could be related to the participation of the
opposition. However, even
if that condition is met the chances of this event are very small
(Wyss, J. 2017).

13. P[HenryFalconWins | OppositionParticipates] = .2
P[HenryFalconWins |-OppositionParticipates] = .06
P[PoliticalChange] A political change occurs in Venezuela
meaning that a new President is
elected.
This event would be related to the opposition and Falcon
winning the elections. If
the opposition wins and Falcon is the elected President, the
chances of a political
Mercado, & Osuna 8
change in Venezuela would be smaller than the scenario where
another
opposition candidate is elected president. If the opposition
doesn’t participate in
the elections, the chances of a political change in Venezuela
would be smaller,
and if Falcon wins the elections in that scenario the chances
would be even
smaller. (Reuters staff. 2018).
P[PoliticalChange|OppositionWins|HenryFalconWins] = .35

14. P[PoliticalChange|OppositionWins|-HenryFalconWins] = .8
P[PoliticalChange|-OppositionWins|HenryFalconWins] = .25
P[PoliticalChange|-OppositionWins|-HenryFalconWins] = .05
P[DemocracyReturns] Venezuela recovers democracy as a
government system.
This event would be related to the existence of a political
change in Venezuela. If
a political change in the country does occur the chances of
democracy returning
would be higher. (Charner, F. 2017).
P[DemocracyReturns | PoliticalChange] = .85
P[DemocracyReturns |-PoliticalChange] = .15
3. Directed Acyclic Diagram and Baseline Bayesian Network
The Bayesian Network was defined using the thirteen nodes
selected for the paper. All
connections were established based on reasonable and supported
assumptions from news articles
(screenshot shown below).

15. Mercado, & Osuna 9
4. Findings
Model Validation:
In order to validate the model, Netica was used using the “Most
Probable Explanation”
function. The output node (DemocracyReturns) was set to “true”
and the model will reflect the
most probable explanation to reach the desired outcome
(screenshot shown below).
Mercado, & Osuna 10
As shown above, the adjusted model reflects the events as
they’re suggested by political
analysts when reviewing the conditions for the presidential
elections. This outcome validates that
the model reflects the events in order for Venezuela to recover
democracy as a consequence of
the upcoming presidential elections.

16. 5. Findings Analysis
In order to analyze the model, we first started with the analysis
of the risks previously
mentioned:
a. Risk 1 Analysis: If the presidential elections don’t have
internal observers, then
the opposition wouldn’t participate in the elections minimizing
the probability of
a political change in Venezuela (screenshot shown below).
If the presidential elections don’t count with the presence of
internal
observers the probability of the opposition participating in the
elections is 44%
Mercado, & Osuna 11
and the probability of the opposition winning is 24%. In other
words, the current
political situation will remain the same for the next 6 years
(2019 - 2025).

17. On the other hand, if the DemocracyReturns node is changed to
100%
then the InternationalObervation node is updated to 63.5 true
which means that
it’s still required for the elections to have international
observers to see
democracy returning to Venezuela (screenshot shown below).
b. Risk 2 Analysis: If more sanctions are established against
Venezuela’s officials,
then the opposition wouldn’t participate in the elections
minimizing the
probability of a political change in Venezuela (screenshot
shown below).
Mercado, & Osuna 12
If more sanctions are established against Venezuela’s officials
the
probability of the opposition participating in the elections
would be 71% and the
probability of a political change would be 32%.
On the other hand, if the DemocracyReturns node is changed to

18. 100%
then the InternationalSanctions node is updated to 78% true
which means that
international sanctions play an important role when it comes to
democracy
returning to Venezuela (screenshot shown below).
Mercado, & Osuna 13
c. Risk 3 Analysis: If Falcon wins the presidential elections,
then Venezuela
wouldn’t have a political change (screenshot shown below).
If Falcon wins the presidential elections the probability of a
political
change in Venezuela is 29.8% and the probability of democracy
returning is 35%.
This confirms what several news articles and analysts have
explained about
Falcon not being able to lead a political change in the country.

19. Mercado, & Osuna 14
After conducting the risks analysis, we were able to answer the
research questions
defined for the study:
a. Would the opposition participate in the elections if
negotiations lead to the
presence of international observers in the process?
As shown above, if the elections count with international
observers and the
opposition participates in the process, there is a fair probability
of 46.6% of
having a democratic government again.
b. Would the opposition participate in the elections if more
sanctions are established
against Venezuela’s officials?
Mercado, & Osuna 15
As shown above, if more sanctions are established against
Venezuela’s

20. officials then the probability of the opposition participating in
the elections would
be 71% and the probability of democracy returning to
Venezuela would be 37%.
c. Would there be a political change in Venezuela if Henry
Falcon is elected
President?
Mercado, & Osuna 16
As shown above, Henry Falcon doesn’t represent a political
guarantee to
see a democratic transition in Venezuela. Even if the opposition
participates in the
elections and Henry Falcon is elected President, there is only a
probability of
35.3% of Venezuela recovering democracy.
d. What are the most important events for a political change to
occur in Venezuela
after the presidential elections?
With the objective of answering this question a sensitivity

21. analysis was
performed to identify the top variables that affect the target
node (Democracy
returns). This analysis shows a political change, the opposition
participating and
winning the elections, and the establishment of a new National
Electoral Council
are significant events for this model. Below are the results of
the sensitivity
analysis.
PoliticalChange 56.2%
OppositionWins 22.7%
OppositionParticipates 7.92%
NewNationalElectoralCoun 2.52%
InternationalObservation 1.04%
FavorableNegotiations 1.02%
InternationalSactions 0.247%
DrugTraffickingProofs 0.0326%
MoneyLaunderingProofs 0.0127%
DEAContinuesInvestigatio 0.0106%

22. AlejandroAndradeSpeaks 0.00585%
Mercado, & Osuna 17
HenryFalconWins 0.00334%
Consequently, we can assume that in order for Venezuela to
recover democracy as its
government system, the presidential elections would have to be
defined with the proper
conditions that will enable the opposition party to participate in
the process. The most important
condition for this to happen would be the establishment of a
new National Electoral Council
which would offer an impartial process that would allow
Venezuelans to elect a President who
would effectively lead a political change in the country.

23. Mercado, & Osuna 18
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against Maduro for presidency,

25. Mercado, & Osuna 19
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opposition-idUSKCN1GB2RP
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Mercado, & Osuna 20

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explained/index.html

30. Xu 1
Chunqi Xu (220000)
Instructor: Dr. Martin A. Negrón
ANLY 515-51-R-2018/Spring
12 April 2018
Bitcoin Crash Simulation and Analysis
A brief description of the event and objectives
Bitcoin is a kind of cryptocurrency and payment system around
the world. It is the first
decentralized digital currency, and the system operates without
any single administrator or
central bank. As of February 2015, about one hundred thousand
merchants accepted
Bitcoin as payment. Research estimates that in 2017, there will
be 2.9 to 5.8 million users
using a cryptocurrency wallet, and most of them will use
Bitcoin.

31. As all cryptocurrencies, Bitcoin is subject to market
fluctuations, where lies potential for
large gains but also significant losses. Just a few years ago, the
only people interested in
Bitcoin were Computer Scientists. If you tried to talk to anyone
else about cryptocurrencies,
they would surely have had a very confused look on their faces.
In recent years, the growth
of Bitcoin, not only its market value growth, but also its
popularity and general
understanding by the wider community have been phenomenal.
But going into 2018, Bitcoin's price has dropped significantly,
from around $19,900 on 17th
December 2017 right down to $8,036 on 4th February 2018.
Each time Bitcoin's price
crashes, there is a very real chance that it could mean the end of
Bitcoin, regardless of what
anyone says you need to be aware of this risk. After the slumps
of January and February, it
Xu 2
seems that the first significant Bitcoin price crash has just
arrived, taking the price well

32. below the $10,000 mark that makes many people feel safe for
the sixth time this year.
So regardless of how many people say a current crash is the
last, it might or might not be,
and no-one really knows for sure.
Risks associated with the event
hardware companies will follow
Bitcoin downward.
Cryptocurrency Ecosystem, then the
prices of most cryptocurrencies will also decrease.
crash will be more likely to
happen.
Research Questions
price that is going to be
decreased for after the Bitcoin crash?
good?

33. Variables used for the model and how the values were
determined
To solve my research questions, I choose ten variables.
1. Bitcoin (BTC - USD) price
The historical data of Bitcoin price
Xu 3
2. BTCS Inc (BTCS) stock price
BTCS, Inc. (also called Bitcoin Shop, Inc.) is a publicly traded
company based in the US,
whose stated line of business is development of applications
related to blockchain
databases and digital currencies.
3. Bitcoin Services, Inc. (BTSC) stock price
Bitcoin Services, Inc. engages in the Bitcoin and mining of
other crypto currencies. The
company offers Bitcoin escrow service and Bitcoin mining
services in order to validate
Bitcoin transactions and provide the requisite security for the
public ledger of the

34. Bitcoin network. It is also involved in the development and sale
of blockchain software.
4. Litecoin (LTC - USD) price
Litecoin is a peer-to-peer cryptocurrency and open source
software project. Creation
and transfer of coins are based on an open source cryptographic
protocol and are not
managed by any central authority. The coin was inspired by, and
in technical details is
nearly identical to, Bitcoin (BTC).
5. Overstock.com, Inc. (OSTK) stock price
Overstock.com, Inc. is an American internet retailer. The
company offers home and
garden products, including furniture, garden, and other related
products; jewelry and
watches; clothing and accessories; electronics and computers;
and other products and
services. The company was introduced to blockchain technology
in 2014 as the first
major retailer to accept Bitcoin.
6. Microsoft Corporation (MSFT) stock price

35. Xu 4
Microsoft Corporation is an American multinational technology
company. It develops,
manufactures, licenses, supports and sells computer software,
consumer electronics,
personal computers, and services. The company announced that
users can buy content
with Bitcoin on Xbox and Windows store.
7. Expedia Group, Inc. (EXPE) stock price
Expedia Group, Inc. is a global travel company. Its websites,
which are primarily travel
fare aggregators and travel metasearch engines, include
Expedia.com, Hotels.com,
Hotwire.com, CarRentals.com, trivago, Venere.com,
Travelocity, Orbitz, and HomeAway.
The company accepts Bitcoin for hotel bookings.
8. S&P 500 (^GSPC) historical data
S&P 500 is an American stock market index based on the
market capitalizations of 500
large companies having common stock listed on the NYSE or
NASDAQ. It is one of the
most commonly followed equity indices, and many consider it
one of the best

36. representations of the U.S. stock market, and a bellwether for
the U.S. economy.
9. Gross Domestic Product (GDP) historical data
Gross domestic product (GDP) is a monetary measure of the
market value of all final
goods and services produced in a period (quarterly or yearly) of
time.
10. Unemployment Rate
The unemployment rate is the share of the labor force that is
jobless, expressed as a
percentage. When the economy is in poor shape and jobs are
scarce, the
unemployment rate can be expected to rise. When the economy
is growing at a healthy
rate and jobs are relatively plentiful, it can be expected to fall.
Xu 5
The independent variables can be divided into four categories.
1) Computer company providing support for Bitcoin:
BTCS Inc (BTCS)
Bitcoin Services, Inc. (BTSC)

37. 2) Other cryptocurrency
Litecoin (LTC - USD)
3) Company accepting Bitcoin
Overstock.com, Inc. (OSTK)
Microsoft Corporation (MSFT)
Expedia Group, Inc. (EXPE)
4) Economic condition
S&P 500 (^GSPC)
Gross Domestic Product (GDP)
Unemployment Rate
The process used to develop the model (simulation)
Since the first stock price of Litecoin is on 10/23/2013, which is
the latest of all variables, I
choose the period range of the data set from 10/23/2013 to
3/29/2018. For Bitcoin and
Litecoin, there are 1619 records, while for the stock price of
BTCS Inc, Bitcoin Services, Inc.,
Overstock.com, Inc., Microsoft Corporation, Expedia Group,
Inc. and S&P 500 index, there are

38. only 1116 records. The reason is that Bitcoin and other
cryptocurrency like Litecoin are traded
via online platforms, so we can have their daily prices,
including Saturday and Sunday.
Xu 6
However, the stocks of other companies are traded through
stock exchanges, which are closed
at weekend. In addition, the stock price of Bitcoin Services, Inc.
is incomplete, with some
missing data. To make up the differences in record number of
variables and the missing data,
the method of simulation is necessary to develop the model.
For BTCS Inc, its stock price covers six years, from 2013 to
2018. Firstly, I calculate the mean
and standard deviation of its adjusted close stock price
(adjusted for both dividends and splits)
for every year.
Xu 7

39. I assume that the daily stock price of BTCS Inc is normally
distributed. Then I simulate its daily
stock price with the mean and standard deviation calculated,
including Saturday and Sunday in
2013, 2014, 2015, 2016, 2017, and 2018 respectively.
Since the simulated results will change every time we click on
the Excel, I copy the simulated
results and paste them as values into the next column.
Because the normal distribution is symmetrical, I get some
negative values from simulation.
However, we will never have a negative stock price. To solve
this problem, I use another
function to make all the simulation values positive.
Xu 8
When the value in column O is positive, I will use that value;
when the value in column O is not
positive, I will use the mean value of that year instead.
I use the same simulation method and get daily stock price of
Bitcoin Services, Inc.,

40. Overstock.com, Inc., Microsoft Corporation, Expedia Group,
Inc. and indexes of S&P 500 from
2013 to 2018.
For GDP, there is a little difference because I can only get the
yearly data. So I divide the yearly
GDP by 360 to get the daily mean value of every year and set
the standard deviation to be 1.
The following steps are the same with stock price.
Although I only get the monthly data of unemployment rate, I
calculate the mean and standard
deviation of monthly data for every year and do the simulation
as for stock price, because the
unemployment rate is not cumulative.
Xu 9
At last, I get the 10 variables with the same number of records.
Findings description

41. After the simulation, I perform the regression analysis to find
out the relationship between the
price of Bitcoin and the other independent variables.
Xu 10
The Multiple R, which is the correlation coefficient, tells us
how strong the linear relationship is.
According to the regression result, the Multiple R is 0.968,
meaning a strong positive
relationship.
Since there is more than one independent variable, I use
Adjusted R Square instead of R Square,
which adjusts for the number of terms in the model. The
Adjusted R Square is 0.937 in this
model, indicating that the model explains more than 90%
variability of the dependent data
around its mean. In other words, more than 90% of the values
fit the model.
According to the third table, the linear regression equation of
the model is
BTC-USD = -16597.47 + 3.04*BTCS + 1058.18*BTSC +
56.41*LTC-USD - 13.97*OSTK - 2.55*

42. MSFT + 3.79*EXPE - 0.07*^GSPC + 0.30*GDP (M$) +
355.52*UNEMPLOYMENT
The p-value in the third table for each variable tests the null
hypothesis that the coefficient is
zero. We can reject the null hypothesis if the p-value is less
than 0.05. That is, an independent
variable with a low p-value is likely to be a term can be kept in
the model because the changes
in that independent variable are meaningful to the changes in
the dependent variable. The p-
value for Bitcoin Services, Inc. (BTSC), Microsoft Corporation
(MSFT) and S&P 500 (^GSPC) are
greater than the alpha level of 0.05, indicating that they are not
statistically significant and can
be removed from the model. So I do the regression analysis
again without these three variables
and the new linear regression equation is:
BTC-USD = -17078.42 + 3.12*BTCS + 56.33*LTC-USD –
14.07*OSTK + 3.95*EXPE + 0.30*GDP
(M$) + 376.67*UNEMPLOYMENT
Xu 11

43. The table shows that there is a strong positive relationship
between the price of Bitcoin and
independent variables, and most of the values fit the model.
Findings analysis and research questions answer
1. What’s the percentage of some hardware company’s stock
price that is going to be
decreased for after the Bitcoin crash?
To answer this question, I keep the value of independent
variables constant and use the 2018
mean value of them, except BTCS Inc (BTCS). Since market
crashes are generally defined by an
abrupt and rapid decline of 20% or more, I define the Bitcoin
crash as that the price of Bitcoin
declines by 20% comparing to its average value in 2018, which
will be 10530.44*(1 – 20%) =
8424.352. Substitute the values into the model, we can get that
8424.352 = -17078.42 + 3.12*BTCS + 56.33*189.783 –
14.07*62.39 + 3.95*116.15 +
0.30*53850.57 + 376.67*4.1
Then,

44. Xu 12
BTCS = -791.086
It seems that after Bitcoin crash, the stock price of BTCS Inc
(BTCS) will be -791.086. However,
as we all know, the stock price will never be negative. So we
can say that after the Bitcoin crash,
the stock price of some hardware company will decrease
dramatically.
2. Will the Bitcoin crash when the economic conditions are
good?
Now there are only two variables in the model indicating
economic conditions, one is GDP, and
another is unemployment rate. The healthy GDP growth rate is
one that is sustainable so that
the economy stays in the expansion phase of the business cycle
as long as possible. The ideal
GDP growth is between 2-3 percent, and the natural rate of
unemployment will be between 4.7
percent and 5.8 percent. I choose 2.5% as GDP growth rate and
5.25% as unemployment rate in
good economic conditions, so the GDP will be
53850.57*(1+2.5%) = 55196.83. Then I substitute
the 2018 mean values of other variables into the model and get

45. that,
BTC-USD = -17078.42 + 3.12*0.10 + 56.33*189.783 –
14.07*62.39 + 3.95*116.15 +
0.30*55196.83 + 376.67*5.25
So BTC-USD = 11729.9
It looks like that Bitcoin will not crash when the economic
conditions are good.
ANLY 515 Final Project
Risk Modeling and Assessment
Description
The objective of the class project is to apply the concepts
learned in class using a real case scenario. The objective is to
analyze a risk using a Monte Carlo simulation or a Bayesian
model. Unlike assigned problems, real world problems rarely
provide the facts and the data needed to model the problem
conditions. As part of presenting a solution for this project you
will have to identify, create or propose the facts and data
needed to develop your model. You must use a software tool to
develop your model.
Risk conditions can be identified in every day events. For this
project, the objective is to identify and analyze a risk from a
current news event (gun regulation, Russian bots, Mueller
investigation, any relevant world event).
The project will consist of 3 separate deliverables and each
deliverable will be graded using the criteria described below:
1. Selection of a topic: Whitepaper (2-3pages) Make sure you
include all the sections listed below

46. · (20 points) Describe in detail the news event
Provide the background information needed to understand your
project. Explain why this topic is important and the impact of
understanding the risks associated with the topic.
· (20 points) Using the concepts discussed in class, identify
potential risks associated with the event.
An event can potentially have multiple risks associated with it;
please focus on closely related events if there is more than one.
Identify who is affected by the risks identified and how the
model can reduce the risk by reducing the uncertainties
associated with the risks by supporting a decision-making
process. You only need to analyze one risk condition.
· (20 points) List the risks using the format presented in class
(identify risk event, mitigation, etc)
The risks identified in this section must be discussed as part of
the model findings. Also, the analysis section of the paper
should be based on the risks identified in this section.
· (20 points) Identify the variables that define this risk scenario
Identify all the variables that you consider relevant in order to
analyze the risks identified.
· (20 points) Identify potential data sources that could be used
to develop your model. In the absence of data sources you can
generate the data using reasonable and supported assumptions.
· List the variables to be used and explain why those variables
were selected by explaining how they relate to the risks.
· Draw an influence diagram showing how the variables
identified related to the risks identified.
2. Analysis (Paper - MLAformat) (you must also upload your
model file)
Write a report including the following sections (list the sections
in your report)
· (20 points) Introduction: A brief description of the event and
your objectives
· (20 points) List the variables used for the model and describe
how the values were determined (the model should have at least

47. 10 variables)
· (20 points) Describe the process used to develop the model
(simulation or Bayesian)
Explain in detail the modeling tool selected and why it is a good
option for the type of risks modeled
· (20 points) Describe your findings
Describe the behaviors and trends of your model and how they
relate with the risks studied.
· (20 points) Analyze your findings and answer your research
questions (using the tools discussed in class)
Explain how the model’s output’s address the uncertainties
associated with the risks identified. Make sure to address the
research questions and explain how the model supports the
decisions associated with the risks.
3. Final presentation
· Event description
· Questions / Risks
· Variables / Data
· Model
· Findings
· Analysis
Resources
Netica Reference
https://www.norsys.com/tutorials/netica/secA/tut_A1.htm
Bayesian Networks for Modeling and Managing Risks of
Natural Hazards
https://www.era.bgu.tum.de/fileadmin/w00bkd/www/Presentatio
ns/2010_Telford_presentation.pdf