Financial Mathematics is the application of mathematical methods to financial problems. It draws on tools from probability, statistics, stochastic processes, and economic theory. Traditionally, investment banks, commercial banks, hedge funds, insurance companies, corporate treasuries, and regulatory agencies apply the methods of financial mathematics to such problems as derivative securities valuation, portfolio structuring, risk management, and scenario simulation.
Financial mathematics is a field of applied mathematics, concerned with mathematical modeling of financial markets. In general, financial mathematics takes market prices as input and it derives and extends the mathematical or numerical models without even establishing financial theory.
We formulate three sub-groups for financial mathematics consisting of :
- Stochastic Analysis.
- Derivative Pricing.
- Risk Management.