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Financial modeling is the task of building an abstract representation (a model) of a real world financial situation. [1] This is a mathematical model designed to represent (a simplified version of) the performance of a financial asset or portfolio of a business, project , or any other investment.
In 1977, Phelim Boyle pioneered the use of simulation in derivative valuation in his seminal Journal of Financial Economics paper. [4] This article discusses typical financial problems in which Monte Carlo methods are used. It also touches on the use of so-called "quasi-random" methods such as the use of Sobol sequences.
Financial risk modeling is the use of formal mathematical and econometric techniques to measure, monitor and control the market risk, credit risk, and operational risk on a firm's balance sheet, on a bank's accounting ledger of tradeable financial assets, or of a fund manager's portfolio value; see Financial risk management. Risk modeling is ...
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 general, there exist two separate branches of finance that require advanced quantitative techniques: derivatives pricing on the one hand, and risk and portfolio ...
Model validation (MV) takes the models and methods developed by front office, library, and modeling quantitative analysts and determines their validity and correctness; see model risk. The MV group might well be seen as a superset of the quantitative operations in a financial institution, since it must deal with new and advanced models and ...
Some slightly different definitions are the study of data and algorithms currently used in finance [2] and the mathematics of computer programs that realize financial models or systems. [3] Computational finance emphasizes practical numerical methods rather than mathematical proofs and focuses on techniques that apply directly to economic ...