Introduction to Mathematical Finance
The end of the 20th century saw an enormous expansion of the global finance
industry. This was accompanied by an equally dramatic development of
mathematical and statistical techniques required to manage financial risk. One
of the most significant developments, for example, has been the gigantic
increase in the volume of trade in financial derivatives.
Derivatives are essential tools to manage and transfer risk, and are
therefore of great importance in trading, insurance and portfolio management.
Today, there are many sophisticated derivative products, and contracts worth
trillions of dollars are negotiated every year.
Derivatives are so named because they are derived from an underlying asset,
and this dependence is amenable to mathematical analysis and the determination
of derivative prices involves significant mathematical modeling and computation.
One essential ingredient for the growth of this area has been the introduction
of sophisticated mathematical tools for the pricing of such derivatives, such as
the Black-Scholes theory of option pricing. (See
here for a
set of slides that introduce some of the basic mathematical ideas that underpin
derivatives pricing).
Derivative pricing is but one aspect of financial mathematics. Currently one
of the fastest growing branches of applied mathematics, it is a broad
multidisciplinary subject that draws on techniques from applied mathematics,
economics, probability theory, statistics, computer science and financial
economics. Today, the financial mathematics toolbox is indispensable to
investment banks, insurance companies, corporate treasuries, hedge funds and
regulatory agencies, who apply it to risk management, structuring financial
products, optimizing the risk-return ratio of portfolios, and asset pricing.
Career Opportunities
The increasing sophistication of financial activity has been accompanied by a
corresponding growth in the employment of quantitative analysts ("quants") and
financial engineers, typically graduates in mathematics and related disciplines.
A thorough understanding of the mathematics of financial modelling and asset
pricing is essential to manage financial risks of all kinds, as well as for the
construction of new products on which financial institutions depend to give them
a competitive edge in the market. Creating and managing these products requires
people with mathematical expertise and has opened up new and lucrative career
prospects for those with high levels of mathematical sophistication. Today,
investment banks, insurers and financial service providers are amongst the
largest employers of people with advanced qualifications in mathematics and
statistics outside academia.
Contact Us
For more information on the MPhil programme, please e-mail Paula
Bassingthwaighte (Administrative Manager) at
Paula.Bassingthwaighte@uct.ac.za.
Please be aware that all applications for study in 2009
are/were due by 31 October 2008
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