Quantitative Finance
Quantitative Finance
Quantitative finance is the branch of finance which deals with application of mathematics to finance. This is also known as mathematical finance. The techniques include:
- Econometrics,
- Differential equations,
- Simulations
Advantages of Quantitative Finance
- Risk are prioritized by their financial impact and assets are prioritized based on their financial value as it is backed by quantitative approach
- Management performance is closely watched by doing necessary calculation based on fact and figures
- Cost analysis can be done by choosing best suited measures
Limitations of Quantitative Finance
- Lack of data
- Chances of manipulations are high
- Challenges on quality of data collated for a given period
- Biased judgment of the implementer due to complexity
While quantitative finance used lots of mathematical approaches, it will only be able to produce correct result when it has sufficient amount of data to do the calculations.
Quantitative finance is heavily used in the field of computational finance and financial engineering. Computational finance deals with applications and modeling with help of stochastic asset models. Investment banking, corporate strategic planning, investment management are few areas where computational finance techniques are heavily used. Financial engineering deals mainly on analysis and building tools of implementation for different models. Financial engineering is heavily used in developing statistical and mathematical tools which are efficient in managing financial risk.
