### Related articles

## Comments

Mathematics in Finance! is an old subject, not really new. In the 1960s as a new hire at the Boeing Company with a BS in Business and minors in math and physics, I was assigned to their Industrial Engineering department. One of my assignments was to create a predictive cost model for the manhours of design labor required to configure the unique combinations of features purchased by each commercial airline for their partially unique jet airplanes. In the years before I arrived, they had no model or estimating tools for this aspect of the business. The "unpredictable" part was the time needed to design the unique wiring, tubing and ducting for each airline, which was driven by dozens of variables. After many tries, I ended up creating a model with differential equations, which I converted to a set of standard graphs for others to use in predicting those hours based on six numeric variables. It blew the minds of most of the industrial engineers and financial analysts at the time, but I made it very easy to use with the graphs. The DE model worked a lot better than the statistical correlation models I crafted, and rejected. Higher math saved the day, at least it did 40 years ago. And in the 1980s, I designed a huge cost estimating model for an all-new airplane that heavily utilized matrix algebra. Another technique not often seen within the financial community back in the 60s and 80s. Keep 'em coming!!

Professor Adams

Excellent and timely explanation of Financial Mathematics. What may have appeared as a relatively dry topic in May 08 is prophetic in Oct 08 especially your line "This application of advanced mathematics to finance has had a profound impact on the global economy."

Your insight into the current market problems would be welcome to many of us.

Jim Myres

I am an independent mathematics student with research ineterest in financial mathematics.

I wish to currently write a research project on the subject``Mathematical Finance`` and willing to hear from all individuals to help me with the subject.

In the mean time, I would like to know how to reduce interest repayment on mortgage refinancing.

I studied mathematics and statistics(major) at university and currently works in a treasury department of a bank.I am very interested in financial mathematics to further my career but have no idea on how ,where i can undertake the studies.

i am good at mathematics and would like to read financial mathematics in the university. l am currently reading sociology, philosophy and religion in one of the universities in Ghana and this involves a lot of reading which i am facing problems.I need advices

There are quite a few UK and USA university textbooks on elementary financial mathematics. Most are predictable and not all that good. One I respect is by Simon Benninga. A hard UK bok is by Wilmott. If you have access to hard currency, you can buy any book in English through Amazon Books.

Financial mathematics comes on 3 levels.

1. Algebra, elementary calculus, optimization, and the exponential and natural log functions. This is the time value of money, and all of finance employs these ideas. A good first year uni course in calculus will give you more than what you need.

2. Probability and statistics. Expectation, variance, covariance, linear model, normal distribution, pdf and cdf. Hypothesis tests. Employed in empirical finance and the pricing of shares.

3. Methods for pricing derivative assets. This can get hard, in the form of stochastic partial differential equations.

For more advice, jj5498@gmail.com .

Another thing, mathematical finance is not all that mathematical. At worst, it involves stochastic differential equations. Probably the most valuable skills are probability/statistics, basic linear algebra, and numerical computer programming.

The vast part of the realm of pure mathematics, e.g., analysis and algebra, differential geometry, and

category theory, play no role in mathematical finance. Mathematical finance is a good deal less demanding than physics. Those of your out there with genuine math skills will be disappointed by mathematical finance.

Nothing compels managers to take mathematical finance seriously. Bosses can also direct quant types to come up with math rationales for practices that are very profitable in the short run, but make the firm very vulnerable to a large shock in the longer run. If a quant type balks at doing this, then he will pay a price come the annual performance review. He may find his pay and rank frozen, and he is likely to be made redundant come the next house cleaning. This will be the case no matter how intellectually sound his reasons for delivering what his masters want.

Mathematicians contributing to science and engineering are often respected. I've not heard of such mathematicians being made to feel like whores. I cannot paint as rosy a picture of financial mathematics, where short run profit can easily steamroll the truth.

Welcome to the site! I'm looking forward to hearing more about what math and physics PhDs contribute to finance. I find that subject fascinating - I work in a field where I get to see what mathematicians and physicists contribute to biology, using some of the same techniques you describe.

Mike