# Introduction to Computational Finance

Computational finance is also known as financial engineering. Read this link to get an idea what computational finance is about. Wikipedia: Computational Finance

This course will be organized in a series of lessons. Each lesson will contain other "mini-lessons" going over prerequisite materials to get through the main lessons.

## The Basics

This section is meant to be a quick review. The goal is to keep this section as brief as possible so that it can be easily used as a quick reference.

## Discounted Cash Flows (DCF)

Wikipedia has two pages that you can start with. Discounted Cash Flow and Time Value of Money. They aren't the best sources in terms of quality, but for the time being, they are included here.

### Definitions

• Cash Flow - An expenditure or receipt of cash in a given time period.
• Cash Flow Stream - A series of cash flows over several periods.

### Simple Interest

With simple interest, the future value grows linearly. In this case, interest is not applied to previous payments of interest (i.e. not compounded).

$FV=(1+rt)PV\!$ r = Simple interest rate
t = Time in years
FV = Future Value
PV = Present value
Note: Unless specified otherwise, for the remainder of the course, these are the default meanings for the variables.

### Compound Interest

For review read this wikipedia article on compound interest. w:Compound_interest

$FV=PV\left(1+{\frac {r}{n}}\right)^{nt}$ n = Number of compounding periods in a year.

If n is infinite, we get continuous compounding.

$FV=\lim _{n\to \infty }PV\left(1+{\frac {r}{n}}\right)^{nt}=PVe^{rt}$ If you need a review of limits, you can check out the following learning resouces. Introduction to Limits or Calculus/Limits

(Coming Soon)

(Coming Soon)

## Derivatives

(Coming Soon) - Will mostly cover the basics and definitions. Later sections will cover pricing.

## Volatility

(Coming Soon) - A good topic to cover before discussing option pricing.

(Coming Soon)

(Coming Soon)