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Unformatted text preview: FINANCIAL MATHEMATICS Osvaldo Lagares, M.S. 1 Financial Mathematics: The Definition ¡ (or mathematical finance) is a branch of financial economics that develops mathematical models to help individuals and institutions analyze financial investments. To develop these models, a financial mathematician must have a sound understanding of: Ł Calculus Ł Probability and statistics Ł Accounting Ł Economics Ł Finance Financial Mathematics: The Definition ¡ (or mathematical finance) is a branch of financial economics that develops mathematical models to help individuals and institutions analyze financial investments. To develop these models, a financial mathematician must have a sound understanding of: Ł Calculus Ł Probability and statistics Ł Accounting Ł Economics Ł Finance 2 Introduction: Savings vs. Investment ¡ Savings : forgone consumption. Ł saving  economy: an act of economizing; reduction in cost; "it was a small economy to walk to work every day"; "there was a saving of 50 cents" Ł saving  characterized by thriftiness; "wealthy by inheritance but saving by constitution" Ellen Glasgow wordnetweb.princeton.edu/perl/webwn Ł a fund of money put by as a reserve wordnetweb.princeton.edu/perl/webwn Ł saving  The difference between income and spending. www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page1030 3 Introduction: Savings vs. Investment ¡ Investment : the production of goods that are used for future production (i.e., investments that increase the future national output of a country). In addition, an economist will make a distinction between. x Investments (Sixth Edition) by William F. Sharpe, Gordon J. Alexander and Jerry V. Bailey, p. 1 Ł Investing: the act of investing; laying out money or capital in an enterprise with the expectation of profit Ł Money that is invested with an expectation of profit Ł The commitment of something other than money (time, energy, or effort) to a project with the expectation of some worthwhile result; "this job calls for the investment of some hard thinking"; "he made an emotional investment in the work¢ x wordnetweb.princeton.edu/perl/webwn 4 Introduction: Savings vs. Investment ¡ Different types of investments: Ł Real investments : x include the production of tangible assets such as factories and equipment and intangible assets such...
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 Spring '11
 Other
 Economics

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