Quantitative Finance For Dummies

By (author) Bell, S
Description
An accessible, thorough introduction to quantitative finance Does the complex world of quantitative finance make you quiver? You''re not alone! It''s a tough subject for even high-level financial gurus to grasp, but Quantitative Finance For Dummies offers plain-English guidance on making sense of applying mathematics to investing decisions. With this complete guide, you''ll gain a solid understanding of futures, options and risk, and get up-to-speed on the most popular equations, methods, formulas and models (such as the Black-Scholes model) that are applied in quantitative finance. Also known as mathematical finance, quantitative finance is the field of mathematics applied to financial markets. It''s a highly technical discipline but almost all investment companies and hedge funds use quantitative methods. This fun and friendly guide breaks the subject of quantitative finance down to easily digestible parts, making it approachable for personal investors and finance students alike. With the help of Quantitative Finance For Dummies, you''ll learn the mathematical skills necessary for success with quantitative finance, the most up-to-date portfolio and risk management applications and everything you need to know about basic derivatives pricing. * Covers the core models, formulas and methods used in quantitative finance * Includes examples and brief exercises to help augment your understanding of QF * Provides an easy-to-follow introduction to the complex world of quantitative finance * Explains how QF methods are used to define the current market value of a derivative security Whether you''re an aspiring quant or a top-tier personal investor, Quantitative Finance For Dummies is your go-to guide for coming to grips with QF/risk management.
Table of contents

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 3

Where to Go from Here 3

Part 1: Getting Started With Quantitative Finance 5

Chapter 1: Quantitative Finance Unveiled 7

Defining Quantitative Finance 8

Summarising the mathematics 8

Pricing, managing and trading 9

Meeting the market participants 9

Walking like a drunkard 10

Knowing that almost nothing isn’t completely nothing 11

Recognising irrational exuberance 14

Wielding Financial Weapons of Mass Destruction 15

Going beyond cash 17

Inventing new contracts 18

Analysing and Describing Market Behaviour 20

Measuring jumpy prices 20

Keeping your head while using lots of data 21

Valuing your options 21

Managing Risk 22

Hedging and speculating 22

Generating income 23

Building portfolios and reducing risk 23

Computing, Algorithms and Markets 24

Seeing the signal in the noise 24

Keeping it simple 25

Looking at the finer details of markets 25

Trading at higher frequency 26

Chapter 2: Understanding Probability and Statistics 27

Figuring Probability by Flipping a Coin 28

Playing a game 31

Flipping more coins 32

Defining Random Variables 33

Using random variables 34

Building distributions with random variables 35

Introducing Some Important Distributions 38

Working with a binomial distribution 39

Recognising the Gaussian, or normal, distribution 40

Describing real distributions 41

Chapter 3: Taking a Look at Random Behaviours 45

Setting Up a Random Walk 45

Stepping in just two directions 47

Getting somewhere on your walk 48

Taking smaller and smaller steps 49

Averaging with the Central Limit Theorem 50

Moving Like the Stock Market 53

Generating Random Numbers on a Computer 54

Getting random with Excel 55

Using the central limit theorem again 58

Simulating Ran