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[edit | edit source]
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)[edit | edit source]
Definitions[edit | edit source]
- 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[edit | edit source]
With simple interest, the future value grows linearly. In this case, interest is not applied to previous payments of interest (i.e. not compounded).
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.
For more info read this: w:Simple_interest
Compound Interest[edit | edit source]
For review read this wikipedia article on compound interest. w:Compound_interest
n = Number of compounding periods in a year.
If n is infinite, we get continuous compounding.
Present value[edit | edit source]
Application: Fixed Income Securities[edit | edit source]
Derivatives[edit | edit source]
(Coming Soon) - Will mostly cover the basics and definitions. Later sections will cover pricing.
Volatility[edit | edit source]
(Coming Soon) - A good topic to cover before discussing option pricing.
Portfolio Management[edit | edit source]
Risk Management[edit | edit source]