1

Motivation
M ti ti

Economics and ever changing human 
E i   d    h i  h  
behaviour

2
Definition:
D fi iti
Refers to the concept of 
ƒ Time
Ti
ƒ Money
ƒ Risk
Ri k
And how they are interrelated

3
ƒ Value of money (and everything) depends on 
timing

3 reasons for TVM
ƒ Inflation 
ƒ Opportunity of investment
ƒ Time preference for consumption

4
ƒ Early contributions of Mathematics to 
E l   t ib ti   f M th ti  t  
Finance

ƒ From theory to Multi‐billion Dollar Practice in 
t  
two years

5
YEAR
1900 Dissertation

Theory of Speculation
(a) (a) Continuous time stochastic 
process
(b) Option‐Pricing
Before 1950s discounting‐ to calc present values of 
future cash‐flows
Mid 1950s (a)Portfolio selection
(b) Capital Asset pricing model
1970s Fisher Black & Myron Scholes – Option 
pricing  model

6
ƒ Role of Mathematicians in finance
R l   f M th ti i  i  fi

The financial markets are increasingly

dominated by a new breed of highly
mathematical traders, known as quantitative
analysts
l t or "quants".
" t "

http://news.bbc.co.uk/2/hi/business/7109805.stm

7
Quantitative Analyst – Finance – Cambridge
Cambridge, Cambridgeshire
C
Company: Cl C b C
ClearCube Consulting
lti
Salary: Generous Base based on experience + bonus

learning
ea ga algorithms,
go s, po
portfolio
o o theory,
eo y, sstatistics
a s cs o or app
applied
ed mathematics.
at e at cs
Whilst experience in, or knowledge of finance theory would be highly
useful, it is not essential. Programming will be an integral part of your job
and you should have experience any of the following: C, C++, C#, Java,
PHP Perl or Matlab
PHP, Matlab.AA Phd,
Phd MSc or BSc degree in a Computer ScienceScience,
Mathematics, Physic

8
Quant Analyst/Developer - Global Investment Bank - Singapore

A leading global investment bank currently has an opportunity for a quantitative

analyst/developer. You will be joining the high-frequency options trading
group and key duties will include working and developing high-performance
valuation
l ti models
d l and d various
i other
th hihigh-profile
h fil projects.
j t

Other aspects of the role include working on areas such as vanilla equity
options, real-time automated trading systems and risk/profitability
analysis.

This is an exciting and varied role, with scope to progress within the company.
You will also have the chance to work with a rangeg of complex
p business areas
and technologies.

Successful candidates will have solid quant development/analysis experience,

with exposure
p to Equity
q y or FX.
Candidates will need excellent C++ skills.

If you feel you are suited to this role please send your CV to Nadia Abdulla at
@ g
n.abdulla@orgtel.com or call me on 0207 337 2323 for further details

9
Pricing Manager ( Client Rel )
Dell (Malaysia
(Malaysia, Bayan Lepas
Lepas, MYS)
. Able to deal with multiple changes and corrections of management
request ·Tertiary education in Marketing, Finance, Mathematics or
Statistics. · At least 5years working experience in marketing or finance-
related field. · Must love working with numbers / spreadsheets. · Strong
English, written ...
From: Dell - 4 days 16 hours ago Email More

Banking - Corporate Banking, Credit Analysis, Loan

PeopleSearch (Malaysia, Malaysia)

Candidate must possess at least a Bachelor's Degree, Professional

Degree or Master's Degree in Mathematics, Economics,
Finance/Accountancy/Banking or equivalent with minimum CGPA 3.00.
• Required skill(s): Strong ... 2 year(s) of working experience in the
related field is required for this position. • Executives specializing in
Finance - Corporate ...

10
ƒ Stock markets: New York, London, Tokyo
ƒ Bond markets: deal in Government and other bonds
ƒ C rrenc  Markets/ Foreign E change Markets
Currency Markets/ Foreign Exchange Markets:
Î where currencies are bought and sold
ƒ Commodity Markets:
Î where physical assets eg. Oil, gold, copper are 
traded
ƒ Future  and Options Markets:
Î where derivative products are traded

11
‐ 1) Pricing of derivatives
) P i i   f d i ti
‐ 2) Hedging strategies for derivatives
‐ 3) Risk management of portfolios
) Ri k  t  f  tf li
‐ 4) Portfolio optimization
‐ 5) Model choice of calibration
) M d l  h i   f  lib ti

12
TASK: (Class period Tuesday- output Thursday)
Explain each of the above. Illustrate with
(graphs/webpage/newspaper etc). (Min. 5/group - Max.6/group).

ƒ Equities ‐ Dividends
ƒ C
Commodities
d
ƒ Currencies – exchange rate, foreign exchange
ƒ Indices
ƒ Forwards & Futures Contract ‐No abitrage
ƒ Hedging
ƒ Speculation
ƒ Financial derivatives
ƒ Conventional vs. Islamic Finance 13
‐ For general financial news: 
F   l fi i l   
www.bloomberg.com, reuters, the EDGE
‐ Wallstreet journal, financial times etc.
W ll t t j l  fi i l ti   t

14