COMPUTATIONAL FINANCE:
OVERVIEW AND FUTURE PROSPECTS
A.G. MALLIARIS
LOYOLA UNIVERSITY CHICAGO
LAMAR UNIVERSITY
April 30, 2004
COMPUTATIONAL FINANCE
Need to discuss
1. FINANCE
2. COMPUTATIONAL
First Things First
FINANCE: Both OLD & NEW
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Emphasis on NEW
Late 1950’s: Portfolio Theory
Late 1960’s: Corporate Finance
1970’s: Derivatives/Options
1980’s: CME, CBOT Trading Financials
1990’s: Deregulation & Globalization
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What Role for Deregulation:
From Fixed to Flexible Exchange
Rates
(i.e. No exchange rate controls)
Banking Deregulation
(i.e. No interest rate controls
Recall Savings & Loans Associations)
Repeal from Glass-Steagall Act of
1933
Globalization
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Capital Mobility
Increased Trade
European Union & Euro
China & WTO
Current Economic Environment
- Competitive
- Global
- Volatile
- From Production to Finance
- Risk Management
The Role of the Fed
- Fight Inflation
- Asset Bubbles: Japan in early
1990’s & U.S. in late 1990’s
- Does the Fed lead or follow
financial markets?
FINANCE TODAY: 4 KEY AREAS
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CORPORATE
INVESTMENTS
BANKING
GLOBAL/MULTINATIONAL
Consider Investments
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Stocks
Bonds
Derivatives
Mutual Funds
Hedge Funds
Other
Financial skills during Mid 1980-90’s
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Financial Analyst
Statistical/Mathematical Analyst
Computer Experts
The emergence of computational
finance/math finance/financial
engineering
Computational
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You are the experts
Commercial Packages: Bloomberg, Reuters
3000Xtra, BridgeStation
Spreadsheets. Example: Mary Jackson and
Mike Staunton, Advanced Modelling in
Finance Using Excel and VBA.
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MATLAB. Example: Paolo Brandimarte,
Numerical Methods in Finance.
The First 5-year period of Computational
Finance
About 30 programs
• Differ in emphasis: math, statistics,
finance, computation
• Size of Faculty:10-20
• Duration 9 months vs. 2 years
• Number of students: 10 – 40/ 200
A long list of programs with a brief summary
can be found at:
www.siam.org/financialmath/programs.htm
Baruch College
MS, Applied Mathematics for Finance
http://math.baruch.cuny.edu/masters.html
Boston University
MA, Mathematical Finance
http://www.bu.edu/mathfn/
Brooklyn Polytechnic University
MS, Financial Engineering
http://www.poly.edu/catalog02-03/catalog02-03-25-financeeng.pdf
Carnegie Mellon University
MS, Computational Finance
http://www.cmu.edu/mscf
Claremont University
MS, Financial Engineering Management
http://www.cgu.edu/fineng/
Columbia University
MS, Industrial Engineering and Operations Research
http://www.engineering.columbia.edu/students/academics/dept/ieor.php
Columbia University
Masters in Mathematics of Finance
http://www.math.columbia.edu/department/masters_finance.shtml
Cornell University
MS, Engineering in Operations Research and Industrial Engineering
http://www.orie.cornell.edu/
Florida State University
MS, Financial Mathematics
http://www.math.fsu.edu/~smith/Guides/finmath.html
Georgia Institute of Technology
MS, Quantitative and Computational Finance
http://www.qcf.gatech.edu/
George Washington University
MS, Finance
http://www.gwu.edu/~finance/
New York University, Courant Institute of Mathematical Sciences
MS, Mathematical Finance
http://www.math.nyu.edu/financial_mathematics/
North Carolina State University
MS, Financial Mathematics
http://www.math.ncsu.edu/finmath
OGI School of Science and Engineering
MS, Computational Finance
http://www.cse.ogi.edu/CompFin/
Oklahoma State University
MS, Quantitative Finance
http://www.siam.org/financialmath/www.bus.okstate.edu/msqfe
Princeton University
MS, Finance
http://www.princeton.edu/~bcf/
Purdue University
MS degree in Mathematics with Computational Finance
Specialization
http://www.math.purdue.edu/academics/graduateProgram/cfp.php
MS degree in Statistics with Computational Finance Specialization
http://www.stat.purdue.edu/compfinance/
Rutgers University
Masters of Quantitative Finance
http://business.rutgers.edu/graduate/mqf/default.htm
Stanford University
MS, Financial Mathematics
http://math.stanford.edu/FinMath/
University of California, Berkeley
MS, Financial Engineering
http://www.haas.berkeley.edu/MFE
University of Chicago
MS, Financial Mathematics
http://www-finmath.uchicago.edu/
University of Michigan
MSE in Financial Engineering
http://interpro.engin.umich.edu/fep
University of Southern California
MS, Mathematical Finance
http://www.usc.edu/dept/LAS/CAMS/MF/
University of Toronto
MMF, Masters of Mathematical Finance
http://www.mmf.utoronto.ca/main.php3
University of Waterloo
Masters in Finance
http://arts.uwaterloo.ca/ACCT/finance/
Ranking of Financial Engineering Programs
General Comments About the Top
Five Programs
Haas School of Business
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Master’s in Financial Engineering
One year program
Faculty from Haas, UCLA, UC Irvine
Theoretical (Mathematical) Finance and
Computer Modeling
Columbia University
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Two Programs offered
Industrial Engineering and Operations
Research
MA in Mathematics with Specialization in
Mathematics of Finance
Emphasis on Stochastics, Numerics and
Financial Applications
New York University
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Program of 12 courses offered in
Mathematics Department
Financial Theory and Modeling
Mathematical Foundations
Computational Skills
Cornell University
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Financial Engineering offered in the School
of Operations Research and Industrial
Engineering
Emphasis on Applied Mathematics
Collaboration with Management
University of Chicago
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Offered by the Mathematics Department
Emphasis on Mathematics: Analysis,
Probability, Stochastic Processes
Minor collaboration with School of
Business
Numerous speakers presenting
applications
Carnegie Mellon
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Master of Science in Computational
Finance
Customized
Computational
Centered
General Conclusions
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Large variety of programs
Housed in various Schools and
Departments
Mostly at the Masters Level
Coursework includes Finance, Math,
Statistics and Computer Science
Prospects
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If current trends of globalization,
deregulation, uncertainty and risk
continue, demand for computational
finance will remain strong
Robert Shiller: The New Financial Order:
Risk in the 21st Century
Conclusions
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Computational Finance as an exciting new
field
How to best train Computational Financial
Analysts?
Computer Science + Finance, or
Finance + Computer Science?