What is Mathematical Finance?
Mathematical Finance is a field of study of financial markets. It is a broad multidisciplinary field of applied mathematics that extensively draws on techniques from probability theory, statistics, scientific computing and partial differential equations to develop models and derive relationships between fundamental variables such as asset prices, market movements and interest rates.
Motivation of Mathematical Finance
The field emerged from the increasing sophistication of the understanding of market behaviour because of advance in technology. It helps with the invention of new efficient methods to understand and manage new forms of risks.
The increasing integration of financial markets around the world has led to greater inter-dependence of market and country specific markets being incapable of insulating themselves from international effects.
Currency (options) derivatives can be a quite challenge in the financial market because they are linked to a particular currency pair in the foreign exchange market. To meet the country’s objectives it is crucially important that market participants in Namibia are as sophisticated in training as their international counterparts.
Furthermore, the derivative market in Namibia is still under-developed. It is a national goal to have a well-developed financial market to assist with developing local money and other market developmental issues. A highly technical understanding of using these instruments is required as huge amount of money can be made or lost through mispricing.
Mathematical Finance synthesizes a highly technical and abstract branch of mathematics, measure theoretic probability, with practical applications that affect peoples’ everyday lives.
Career in Mathematical Finance
Mathematical Finance programmes exist because the techniques within the derivatives pricing and risk management industry are becoming more mathematical and rigorous. In order to develop new exotic derivative instruments, as well as to understand how to price and hedge them, the knowledge of Mathematical Finance is useful.