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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What's the value of $5000 in 50 year if inflation is 2%?

My boss asked a simple question today but I couldn't find the right answer. He asked: If I had \$5,000 today in cash, the inflation is 2% year-over-year, then then what's its buying power (value) after 50 years? If I use the following formula: $5000…
Josh
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Calculate the VaR

An investor has a portfolio of three positions. The 1-day $95\%$ VaRs for positions 1, 2 and 3 are $\$250$, $\$180$ and $\$480$ respectively. The correlation matrix is given as follows. Position 1 2 3 1 1.0 0.6 -0.5 2 …
Jerome Cheang Yue Liang
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How the banker limits his risk?

In a game like Deal or no Deal, what is the formula the banker uses to give an offer to the contestant? The banker offers the contestant an amount of money to quit the game, the offer based roughly on the amounts remaining in play and the…
Martin
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Is there an efficient method or technique to find an arbitrage between two FX dealers?

Crossposed on Quantitative Finance SE I was able to solve this problem and find the arbitrage but only after spending a long time on it and trying out different possibilites, is there a method or technique that can help me find the arbitrage faster…
idknuttin
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What is the maximum expected Sharpe ratio by combining two assets into a portfolio?

Given two assets that have expected excess returns of 7 and 4. Also, given their expected co-variance matrix $$ \begin{bmatrix} 2 & 1 \\ 1 & 1 \\ \end{bmatrix} $$ What is the maximum expected Sharpe ratio that you…
danybutvinik
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Pricing a Europen style put option

So I'm enrolled in a Mathematics for Finance course, and we received this question on the last Problem Set. I'm completely stuck on how to solve this problem. I tried applying the formula xS(t) + yA(t) = C(t), but I get stuck with figuring out A(t)…
Maria Sanchez
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What's the purpose of this unknown (financial) math formula?

I am maintaining an old piece of financial software. In the source code I have found an implementation of the following formula: $$p2 \over (p1 + 1) - (p1 * p2)$$ The formula is used as part of some sort of financial tax calculation. If it is of any…
herzbube
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Total MSRP given monthly payment, downpayment %, and term of autoloan

I want to buy a car. I know the following: - monthly payment - interest rate - # of months of loan - downpayment % How can I calculate the total MSRP I can get for my monthly payment? So for example: I can afford $200 a month My interest rate is…
mconlin
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Question about a summation problem from finance

I'm studying a journal article about finance and I have trouble understanding how the author reach a result. The equation he begins with is: $$VTS_0=TD_0+T\Sigma_1^\infty PV_0[ΔD_t] \tag 1$$ Then he is stating that: $$PV_0[\Delta D_t]=\Delta…
Nikolaos Markoglou
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Understanding APR - can it be calculated as a dollar amount

If the APR (as used in the US Truth in Lending Act) is considered "the cost of your credit as a yearly rate," can an APR be converted to a dollar amount? For example 10% simple interest per year on a $\$100$ loan would be $\$10$ per year (right? …
APR
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Basic question mathematical finance, law of one price in single period markets.

I am reading Pliskas Introduction to mathematical finance. And I am at single period models. It is the law of one price I am having a hard time of understanding. I have some questions about this: On Wikipedia I read the the law of one price means…
user119615
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Calculating inflation rate

This is my maths problem (It is NOT homework help, just me trying to learn basics of this bit of maths): A car cost £14,000 in May 1994, the inflation rate then was 1.9%, but the current inflation rate today is 1.7% so what would it be worth…
ukg86
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Trying to calculate FV with annual & monthly fees

First question on here so please go easy if it's a stupid one! I have created a PHP based FV calculator for use on a client's website. This is the scenario: They offer returns of 3% per month based on a variable investment amount (for argument's…
Wildcard27
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Paying Debt Off in a year

I want to know how to calculate minimum fixed monthly payment needed in order to pay off a credit card balance within 12 months. I just want to understand the concept, and how to work around this problem. Any book suggestion on this kind of problem…
hky404
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Annuities and Loans

A loan for $8\, 000$ must be repaid with $6$ year end payments at an annual rate of $11 \%$. What is the annual payment? I know that the present value of an annuity with end payments is $\frac{1-v^n}{i}$ where $v = 1/(1+i)$. Likewise, the future…
NebulousReveal
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