Admission Sync

del.icio.us Tags: Financial Engineering, Financial Mathematics, Quantitative and Computational Finance

Quantitative and Computational Finance

It is an area referred to under a variety of names, for example, ‘computational finance’, ‘financial engineering’, ‘mathematical finance’ and ‘financial mathematics’. But in all cases there is an effort that involves ‘financial’, ‘mathematical’, ‘quantitative’ and ‘computational’ thinking to build, test and implement models that are at the center of these financial activities.

Financial Mathematics
It is the branch of applied mathematics concerned with the financial markets. The subject naturally has a close relationship with the discipline of financial economics, however the subject is narrower in scope and more abstract. A central difference is that whilst a financial economist might study the structural reasons why a company may have a certain share price, a mathematician may take the share price as a given, and attempt to use stochastic calculus to obtain the fair value of derivatives of the stock.

Financial Engineering

There are numerous definitions of financial engineering, but most revolve around managing and reducing financial risk. A few definitions from popular books and web sites include the following:
“Financial engineering refers to the application of various mathematical, statistical and computational techniques to solve practical problems in finance. Such problems include the valuation of derivatives instruments such as options, futures and swaps, the trading of securities, risk management and regulation of financial markets. No single set of mathematical tools, computational techniques or financial theory describes financial engineering. Rather, it is the synthesis of a variety of these elements. Financial engineering is a practical field and a practitioners’ field by its nature. It is driven in large part by practical problems that arise in the course of daily business; the nature of the problems demand that practitioners draw from as broad a palate of tools as possible to find the best solutions to their problems. A second, related definition is that financial engineering is the use of financial instruments such as forwards, futures, swaps, options, and related products to restructure or rearrange cash flows in order to achieve particular financial goals, particularly the management of financial risk.”

Technorati Tags: Financial Engineering, Financial Mathematics, Quantitative and Computational Finance

Filed under: Computational Finance, Financial Engineering ,Financial Mathematics