Mathematics Stack Exchange
Mathematics Stack Exchange

Questions tagged [finance]

Questions related to the various aspects of financial mathematics. Topics include option pricing, arbitrage theory, market completeness and stochastic analysis.

Mathematical finance, also known as quantitative finance, deal with finance and financial markets in a mathematical manner.

Some examples of mathematical finance are the fundamental theorem of asset pricing which provides the conditions for a market to be arbitrage-free and complete, and the Black–Scholes equation, which uses partial differential equations to describe the price of an option over time.

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2637 questions
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Maximizing the Sharpe ratio by finding the optimal weights

In calculating the Sharpe Ratio: $S = (\frac{\bar r_p - r_f}{\sigma_p})$ Where: $\bar r_p$ = Portfolio return (See below) $r_f$ = Risk free rate = 0.03 (for simplicity) $\sigma_p$ = Portfolio risk (see below) Risk formula $\sigma_p =…
Alex McLean
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Financial Mathematics, Simple interest question. Help.

Laurie deposits $\$60,000$ in a bank at $5\%$ interest per annum. Andrew deposits $\$40,000$ in bank at $8\%$ per annum. How long wil it take, by simple interest, for Andrew to have more money than Laurie? What I have done so far: I calculated the…
006609
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I'm trying to reverse engineer a formula to find answers without trial and error.

As an example, I need to pay €100 to this business, and there are 2 separate fees I need to also pay, the fee for the payment processor and the VAT (Value Added Tax). I know that the fee for the payment processor is 2.4% + .24c and that the VAT is…
Josh
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What is the difference between simple interest and simple discounting?

I have been given the following statements: "Simple interest: $C$ now $\equiv (1+in)C$ in $n$ years; $C$ in $n$ years $\equiv \frac{C}{1+in}$ now. Simple discounting: $C$ in $n$ years $\equiv (1−dn)C$ now; $C$ now $\equiv \frac{C}{1-dn}$ in $n$…
M Smith
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Maximum value for a dependent variable in a marginal effect model

I am unsure as to whether my calculations are correct. Currently, the model given is: The first question was to derive an equation for the marginal effects of EDU on In(Wage). I obtained the following equation: The second question asked was…
user240941
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Common term for "present value" and "future value"

In the past, I have always used the term "present value" for the value of a payment made at some point in time $t$ from the perspective of some other valuation point in time $T$. I did not distinguish the cases $t < T$ and $t > T$, as these cases…
JohnB
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Financial Mathematics Question - How to approach?

I know the answer, but I'm not sure how to 'approach' the question the right way. The question is "Katarina would like to buy a house in 4.5 years time and requires a deposit of $40000. What contribution should she make every six months into an…
ihaveanexamtomorrow
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The Present Worth of $169 due in 2 years at 4% Per Annum Compound Interest

The present worth of $\$169$ due in 2 years at $4\%$ per annum compound interest is The choices are as follow: $\$150.50$ $\$154.75$ $\$156.25$ $\$158$ I tried to solve this by multiplying $169$ to ($0.96$) and ($0.96$) and got $155.7504$ which is…
T.Martinez
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today's price of a European put option with payoff $(K-S_1)^+$

I'm trying to calculate the today's price of a European put option, which strikes at price $K$, so that the payoff is $(K-S_1)^+$, in an arbitrage-free, one-period market. As of now, I can only think of $Price=\frac{1}{1+R} E[X]$, here with…
Marie. P.
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How to calculate savings over the life of a car loan?

I'm working through the maths in this, only the relevant parts of which I quote: ...On a \$25,000 car loan through the manufacturer for four years, your monthly payment would be about [1.] \$520 at 0% interest or [2.] \$541 with a 1.9% interest…
user53259
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How do I calculate interest on short term loan?

I'm trying to work out interest on short term loans - these are loans that extend to months not years, and are typically repaid in monthly chunks, but I also know that some are repayable in weekly instalments. A 'month' can also have slightly…
Johnnyboy
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Calculating a Forward Starting Swap with Forward Equations

I have been trying to resolve this problem for some time but I cannot get the correct answer. The problem is the following one. Compute the initial value of a forward-starting swap that begins at t=1, with maturity t=10 and a fixed rate of 4.5%.…
Katherine99
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Forward Starting Swaps and Forward Equations

Hi all I have a problem when I have to calculate swaps/swaptions. n=10-period binomial model for the short-rate, ri,j. The lattice parameters are: r0,0=5%, u=1.1, d=0.9 and q=1−q=1/2. 1.Compute the initial value of a forward-starting swap that…
Katherine99
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Help for calculating the correct marked price?

A) For this equation I need help calculating the marked price. A retailer wants to make a 22% profit on the sale of a television set. The television set cost the retailer $560. What should the marked price of the TV be? Silly enough as it is, I'm…
sploop
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Bonds ... whats is it and what is a discount?

I am studying about bonds and I am a bit puzzled. So far my understanding is that bonds are loans issued by the government or a company and it works very similarly to loans. However, I have a question regarding a premium bond and a discount bond. …
hyg17
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