MATHEMATICS OF FINANCIAL MARKETS
The research is about the business of financial markets which includes trading of securities and shares. It explains the calculation and mathematics behind every purchase or sale in the financial market. These days firms are employing statisticians to track patterns or trends in trading behaviour and to predict future market movements. These formulae are then fed into powerful computers that buy and sell automatically.
A financial market is a market in which people trade financial securities and derivatives such as futures and options at low transaction cost. Securities include stocks and bonds, and precious metals.
We could launch into a discussion with different aspects of mathematics that are used in world of finance.Many people are not even aware of what the business of financial markets is, what the different jobs are!!
By financial markets, I mean the business of trading (buying and selling) risk. I am not talking about the ‘retail’ side of banking (i.e. your high street bank) and nor am I talking about advisory activities (mergers and acquisitions).
Mathematicians have long played a vital role in risk management at financial institutions, but their skill set is increasingly being used to make money, not just to stop losing it.
Long ago computers had made dealers redundant but still brokers have remained the masters of the investment universe, free to sell and and buy whenever they see fit.
Investment decisions are no longer made by financiers, but by PhD Mathematicians and the complex computer programs that they devise. Fundamental research and intuition are being held by algorithmic formulae. Quant trading are taking over the world’s financial capitals.
These days firms are employing statisticians to track patterns or trends in trading behaviour and to predict future market movements. These formulae are then fed into powerful computers that buy and sell automatically.
Whether you have knowledge about buying and selling of stocks or you barely understand what’s going on in your retirement, it is always beneficial to know the math behind the stock market. There are several mathematic equations which help investors to understand which are the right stocks. Most importantly keep your expectations about future returns grounded in reality.
Innovative financial market analysis based on chaos theory mathematics yields accurate and verifiable results while risk management improves.
Can mathematics beat financial market? Neither maths nor economics have yet completely predicted financial markets. No model can consistently predict future. Math can only predict the risk of the given event. The risk just means the possibility that something bad will happen. This can be done because we have more and accurate data. It is like insurance companies, they cannot tell you when will you die but they can predict the risk that you will die. Same thing is with stocks. If you lose less, you are ahead of those who lose more.