Flashcards: Mathematical finance

In financial mathematics, a risk measure is used to determine the amount of an asset or set of assets (traditionally currency) to be kept in reserve.

Computational finance is a branch of applied computer science that deals with problems of practical interest in finance.

The addition of interest to the principal sum of a loan or deposit is called compounding.

Value at Risk (VaR) is a measure of the risk of investments.

In economics, present value, also known as present discounted value, is the value of an expected income stream determined as of the date of valuation.

Econophysics is an interdisciplinary research field, applying theories and methods originally developed by physicists in order to solve problems in economics, usually those including uncertainty or stochastic processes and nonlinear dynamics.

The Black–Scholes /ˌblæk ˈʃoʊlz/ or Black–Scholes–Merton model is a mathematical model of a financial market containing derivative investment instruments.

The internal rate of return (IRR) or economic rate of return (ERR) is a method of calculating rate of return.

Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk, defined as variance.

The forward rate is the future yield on a bond.

Cointegration is a statistical property of a collection (X1,X2,...,Xk) of time series variables.

In mathematical economics, the Arrow–Debreu model suggests that under certain economic assumptions (convex preferences, perfect competition, and demand independence) there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy.

Implied Repo Rate (IRR) is the rate of return of borrowing money to buy an asset in the spot market and delivering it in the futures market where the notional is used to repay the loan.

Intertemporal portfolio choice is the process of allocating one's investable wealth to various assets, especially financial assets, repeatedly over time, in such a way as to optimize some criterion.

Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period.

Profit-at-Risk (PaR) is a risk management quantity most often used for electricity portfolios that contain some mixture of generation assets, trading contracts and end-user consumption.

In mathematical finance, the Greeks are the quantities representing the sensitivity of the price of derivatives such as options to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent.

The Liquidity-at-Risk (short: LaR) is a quantity to measure financial risks and is the maximum net liquidity drain relative to the expected liquidity position which should not be exceeded at a given confidence level (e.g. 95%).