financial mathematics

The fact that a sizeable proportion of the financial workforce is made up of physicists is one of the industry's best-kept secrets. We talk to Laura Tadrowski, who has made the leap from physics to finance.

Deciding who is to blame and who should pay for the financial crisis will be a hot topic at the G8 next week. Financial mathematics received a lot of bad press in the aftermath of the crunch and many believe that it was the popularity of mathematical models – often borrowed from physics — that put the financial system at risk. But now models borrowed from biology are helping us understand how this risk might be reduced.

Many people's impression of mathematics is that it is an ancient edifice built on centuries of research. However, modern quantitative finance, an area of mathematics with such a great impact on all our lives, is just a few decades old. The Isaac Newton Institute quickly recognised its importance and has already run two seminal programmes, in 1995 and 2005, supporting research in the field of mathematical finance.

Why does a financial mathematician think about birds when trying to understand the grounding of aeroplanes after the Icelandic volcano eruption?

Tim Johnson was drawn into financial maths, not through an interest in finance, but because he was interested in making good decisions in the face of uncertainty. Tim explores the development of this interface between abstract mathematics and our everyday lives, and explains why a painting may only be worth its wall space.
Horatio Boedihardjo explains the credit crunch
In the light of recent events, it may appear that attempting to model the behaviour of financial markets is an impossible task. However, there are mathematical models of financial processes that, when applied correctly, have proved remarkably effective. Angus Brown looks at one of these, a simple model for option pricing, and explains how it takes us on the road to the famous Black-Scholes equation of financial mathematics, which won its discoverers the 1997 Nobel Prize in Economics.
With the credit crunch dominating the news, columnists have been wailing about "chaos in the markets", and "turbulent" share prices. But what does move the markets? Are they deterministic, or a result of chance? Colva Roney-Dougal explores the maths, from chaos to group theory.
How to keep inflation down
Rupa Patel never wanted to be a financial engineer — she wanted to be a maths teacher. However, her skills in conveying difficult mathematical concepts to others, as well as a love of maths, enticed her into the exciting field of financial mathematics. Now she models risk, travels Europe and occasionally finds time to herself to examine the maths of her job in detail.
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