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Encyclopedia > Computational finance

Computational finance (also known as financial engineering) is a cross-disciplinary field which relies on mathematical finance, numerical methods and computer simulations to make trading, hedging and investment decisions, as well as facilitating the risk management of those decisions. Utilizing various methods, practitioners of computational finance aim to precisely determine the financial risk that certain financial instruments create. Financial engineering is the application of science-based mathematical and statistical models to make a better decision about managing financial risks, investing, borrowing, lending, and saving. ... Mathematical finance is the branch of applied mathematics concerned with the financial markets. ... Numerical analysis is the study of approximate methods for the problems of continuous mathematics (as distinguished from discrete mathematics). ... It has been suggested that simulation software be merged into this article or section. ... Look up Trade in Wiktionary, the free dictionary Trade centers on the exchange of goods and/or services. ... It has been suggested that this article or section be merged into Hedge (finance). ... Invest redirects here. ... For non-business risks, see risk or the disambiguation page risk analysis. ... In essence financial risk is any risk associated with money. ... Financial instruments package financial capital in readily tradeable forms - they do not exist outside the context of the financial markets. ...

Contents

Areas of application

Areas where computational finance techniques are employed include:

To meet Wikipedias quality standards, this article or section may require cleanup. ... Computer software (or simply software) refers to one or more computer programs and data held in the storage of a computer for some purpose. ... Strategic planning is an organizations process SCREW YOU, RILEY of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable interest representing financial value. ... Look up Trade in Wiktionary, the free dictionary Trade centers on the exchange of goods and/or services. ... Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit and market risk. ... Derivatives traders at the Chicago Board of Trade. ... Investment management is the professional management of various securities (shares, bonds etc) assets (e. ...

Major contributors

Some major contributors to computational finance include:

Generally, individuals who fill positions in computational finance are known as “quants”, referring to the quantitative skills necessary to perform the job. Specifically, knowledge of the C++ programming language, as well as of the mathematical subfields of: stochastic calculus, multivariate calculus, linear algebra, differential equations , probability theory and statistical inference are often entry level requisites for such a position. [C++ has become the dominant language for two main reasons: the computationally intensive nature of many algorithms, and the focus on libraries rather than applications.] Harry Max Markowitz (born August 24, 1927) is an influential economist at the Rady School of Management at the University of California, San Diego. ... Myron S. Scholes (born July 1, 1941) is one of the authors of the famous Black-Scholes equation. ... Robert C. Merton (born July 31, 1944), a leading scholar in the field of finance, was one of three men who, in the early 1970s, developed the mathematics of the stock options markets. ... Fischer Black (1938 - August 30, 1995) was an American economist, best known as one of the authors of the famous Black-Scholes equation. ... A quantitative analyst is a person who works in the financial markets developing mathematical models to assist the activities of traders and risk managers within banks and other large corporate institutions. ... C++ (pronounced see plus plus, IPA: ) is a general-purpose programming language with high-level and low-level capabilities. ... Stochastic calculus is a branch of mathematics that operates on stochastic processes. ... Multivariate calculus is a means of analyzing deterministic systems with multiple degrees of freedom. ... Linear algebra is the branch of mathematics concerned with the study of vectors, vector spaces (also called linear spaces), linear maps (also called linear transformations), and systems of linear equations. ... In mathematics, a differential equation is an equation in which the derivatives of a function appear as variables. ... Probability theory is the branch of mathematics concerned with analysis of random phenomena. ... It has been suggested that this article or section be merged with inferential statistics. ...


Computational finance was traditionally populated by Ph.Ds in finance, physics and mathematics who moved into the field from more pure, academic backgrounds (either directly from graduate school, or after teaching or research) prior to the 1980s. However, as the actual use of computers has become essential to rapidly carrying out computational finance decisions, a background in pure computer science is now also needed, and hence many computing graduates enter the field as well. Masters level degree holders are also increasingly making their presence felt as more terminal programs become available at the leading schools (hence field practitioners are almost exclusively recruited). Doctor of Philosophy (Ph. ...


Today, all full service institutional finance firms employ computational finance professionals in their banking and finance operations (as opposed to being ancillary information technology specialists), while there are many other boutique firms ranging from 20 or fewer employees to several thousand that specialize in quantitative trading alone. JPMorgan Chase & Co. was one of the first firms to create a large derivatives business and employ computational finance, (including through the formation of RiskMetrics), while D. E. Shaw & Co. is probably the oldest and largest quant fund (Citadel Investment Group is a major rival). Information and communication technology spending in 2005 Information technology (IT), as defined by the Information Technology Association of America (ITAA), is the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware. ... JPMorgan Chase & Co. ... RiskMetrics is a set of financial models that are used by investors to measure portfolio risk. ... D. E. Shaw & Co. ... Citadel Investment Group is a $13. ...


See also

Topics in finance include: // Finance an overview Arbitrage Capital (economics) Capital asset pricing model Cash flow Cash flow matching Debt Default Consumer debt Debt consolidation Debt settlement Credit counseling Bankruptcy Debt diet Debt-snowball method Discounted cash flow Financial capital Funding Financial modeling Entrepreneur Entrepreneurship Fixed income analysis Gap financing... A quantitative analyst is a person who works in the financial markets developing mathematical models to assist the activities of traders and risk managers within banks and other large corporate institutions. ... This article does not cite any references or sources. ... QuantLib is a free/open-source cross-platform software library for quantitative finance, issued under the BSD License. ... Mathematical finance is the branch of applied mathematics concerned with the financial markets. ...

External links


  Results from FactBites:
 
Computational finance - Wikipedia, the free encyclopedia (472 words)
Computational finance (also known as financial engineering) is a cross-disciplinary field which relies on mathematical finance, numerical methods and computer simulations to make trading, hedging and investment decisions, as well as facilitating the risk management of those decisions.
Computational finance was traditionally populated by Ph.D's in finance, physics and mathematics who moved into the field from more pure, academic backgrounds (either directly from graduate school, or after teaching or research) prior to the 1980’s.
Today, all full service institutional finance firms employ computational finance professionals in their banking and finance operations (as opposed to being ancillary information technology specialists), while there are many other boutique firms ranging from 20 or fewer employees to several thousand that specialize in quantitative trading alone.
  More results at FactBites »

 
 

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