Finance is the study and discipline of money, currency and capital assets. It is related to but distinct from economics, which is the study of the production, distribution, and consumption of goods and services. Based on the scope of financial activities in financial systems, the discipline can be divided into personal, corporate, and public finance.
Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most commonly used types of market risk are:
Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning only one type. Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return. The variance of return is used as a measure of risk, because it is tractable when assets are combined into portfolios. Often, the historical variance and covariance of returns is used as a proxy for the forward-looking versions of these quantities, but other, more sophisticated methods are available.
In finance, bond convexity is a measure of the non-linear relationship of bond prices to changes in interest rates, and is defined as the second derivative of the price of the bond with respect to interest rates. In general, the higher the duration, the more sensitive the bond price is to the change in interest rates. Bond convexity is one of the most basic and widely used forms of convexity in finance. Convexity was based on the work of Hon-Fei Lai and popularized by Stanley Diller.
Financial risk management is the practice of protecting economic value in a firm by managing exposure to financial risk - principally operational risk, credit risk and market risk, with more specific variants as listed aside. As for risk management more generally, financial risk management requires identifying the sources of risk, measuring these, and crafting plans to mitigate them. See Finance § Risk management for an overview.
In financial economics, asset pricing refers to a formal treatment and development of two interrelated pricing principles, outlined below, together with the resultant models. There have been many models developed for different situations, but correspondingly, these stem from either general equilibrium asset pricing or rational asset pricing, the latter corresponding to risk neutral pricing.
Financial modeling is the task of building an abstract representation of a real world financial situation. This is a mathematical model designed to represent the performance of a financial asset or portfolio of a business, project, or any other investment.
Lars Peter Hansen is an American economist. He is the David Rockefeller Distinguished Service Professor in Economics, Statistics, and the Booth School of Business, at the University of Chicago and a 2013 recipient of the Nobel Memorial Prize in Economics.
Frank J. Fabozzi is an American economist, educator, writer, and investor, currently Professor of Practice at The Johns Hopkins University Carey Business School and a Member of Edhec Risk Institute. He was previously a Professor of Finance at EDHEC Business School, Professor in the Practice of Finance and Becton Fellow in the Yale School of Management, and a Visiting Professor of Finance at the Sloan School of Management at the Massachusetts Institute of Technology. He has authored and edited many books, three of which were coauthored with Nobel laureates, Franco Modigliani and Harry Markowitz. He has been the editor of the Journal of Portfolio Management since 1986 and is on the board of directors of the BlackRock complex of closed-end funds.
The following outline is provided as an overview of and topical guide to finance:
Financial models with long-tailed distributions and volatility clustering have been introduced to overcome problems with the realism of classical financial models. These classical models of financial time series typically assume homoskedasticity and normality cannot explain stylized phenomena such as skewness, heavy tails, and volatility clustering of the empirical asset returns in finance. In 1963, Benoit Mandelbrot first used the stable distribution to model the empirical distributions which have the skewness and heavy-tail property. Since -stable distributions have infinite -th moments for all , the tempered stable processes have been proposed for overcoming this limitation of the stable distribution.
Damiano Brigo is a mathematician known for research in mathematical finance, filtering theory, stochastic analysis with differential geometry, probability theory and statistics, authoring more than 130 research publications and three monographs. From 2012 he serves as full professor with a chair in mathematical finance at the Department of Mathematics of Imperial College London, where he headed the Mathematical Finance group in 2012–2019. He is also a well known quantitative finance researcher, manager and advisor in the industry. His research has been cited and published also in mainstream industry publications, including Risk Magazine, where he has been the most cited author in the twenty years 1998–2017. He is often requested as a plenary or invited speaker both at academic and industry international events. Brigo's research has also been used in court as support for legal proceedings.
A Master of Financial Economics is a master's degree focusing on financial economics. The degree provides a rigorous understanding of theoretical finance and the economic framework upon which that theory is based. The degree is postgraduate, and usually incorporates a thesis or research component. Programs may be offered jointly by the business school and the economics department.
Portfolio optimization is the process of selecting an optimal portfolio, out of a set of considered portfolios, according to some objective. The objective typically maximizes factors such as expected return, and minimizes costs like financial risk, resulting in a multi-objective optimization problem. Factors being considered may range from tangible to intangible.
Quantitative analysis is the use of mathematical and statistical methods in finance and investment management. Those working in the field are quantitative analysts (quants). Quants tend to specialize in specific areas which may include derivative structuring or pricing, risk management, investment management and other related finance occupations. The occupation is similar to those in industrial mathematics in other industries. The process usually consists of searching vast databases for patterns, such as correlations among liquid assets or price-movement patterns.
Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling in the financial field.
In financial mathematics and economics, a distortion risk measure is a type of risk measure which is related to the cumulative distribution function of the return of a financial portfolio.
Laurent-Emmanuel Calvet is a French economist and a professor of finance. He is Vice President Elect of the European Finance Association.
Stefan Mittnik is a German economist, currently holds the Chair of Financial Econometrics at the Ludwig Maximilian University of Munich. He is a fellow of the Center for Financial Studies and known for his work on financial market and financial risk modeling as well as macroeconometrics. He is also a co-founder of the German-British robo-advisor Scalable Capital.
The Rachev Ratio is a risk-return performance measure of an investment asset, portfolio, or strategy. It was devised by Dr. Svetlozar Rachev and has been extensively studied in quantitative finance. Unlike the reward-to-variability ratios, such as Sharpe ratio and Sortino ratio, the Rachev ratio is a reward-to-risk ratio, which is designed to measure the right tail reward potential relative to the left tail risk in a non-Gaussian setting. Intuitively, it represents the potential for extreme positive returns compared to the risk of extreme losses, at a rarity frequency q defined by the user.
