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COMPUTATIONAL FINANCE:

COMPUTATIONAL FINANCE:. OVERVIEW AND FUTURE PROSPECTS A.G. MALLIARIS LOYOLA UNIVERSITY CHICAGO LAMAR UNIVERSITY April 30, 2004. COMPUTATIONAL FINANCE Need to discuss. 1. FINANCE 2. COMPUTATIONAL. First Things First FINANCE: Both OLD & NEW Emphasis on NEW

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COMPUTATIONAL FINANCE:

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  1. COMPUTATIONAL FINANCE: OVERVIEW AND FUTURE PROSPECTS A.G. MALLIARIS LOYOLA UNIVERSITY CHICAGO LAMAR UNIVERSITY April 30, 2004

  2. COMPUTATIONAL FINANCENeed to discuss 1. FINANCE 2. COMPUTATIONAL

  3. First Things First FINANCE: Both OLD & NEW Emphasis on NEW • Late 1950’s: Portfolio Theory • Late 1960’s: Corporate Finance • 1970’s: Derivatives/Options • 1980’s: CME, CBOT Trading Financials • 1990’s: Deregulation & Globalization

  4. What Role for Deregulation: • From Fixed to Flexible Exchange Rates (i.e. No exchange rate controls) • Banking Deregulation (i.e. No interest rate controls Recall Savings & Loans Associations) • Repeal from Glass-Steagall Act of 1933

  5. Globalization • Capital Mobility • Increased Trade • European Union & Euro • China & WTO

  6. Current Economic Environment • Competitive • Global • Volatile • From Production to Finance • Risk Management

  7. The Role of the Fed • Fight Inflation • Asset Bubbles: Japan in early 1990’s & U.S. in late 1990’s • Does the Fed lead or follow financial markets?

  8. FINANCE TODAY: 4 KEY AREAS • CORPORATE • INVESTMENTS • BANKING • GLOBAL/MULTINATIONAL

  9. Consider Investments • Stocks • Bonds • Derivatives • Mutual Funds • Hedge Funds • Other

  10. Financial skills during Mid 1980-90’s • Financial Analyst • Statistical/Mathematical Analyst • Computer Experts The emergence of computational finance/math finance/financial engineering

  11. Computational • You are the experts • Commercial Packages: Bloomberg, Reuters 3000Xtra, BridgeStation • Spreadsheets. Example: Mary Jackson and Mike Staunton, Advanced Modelling in Finance Using Excel and VBA. • MATLAB. Example: Paolo Brandimarte, Numerical Methods in Finance.

  12. The First 5-year period of Computational Finance About 30 programs • Differ in emphasis: math, statistics, finance, computation • Size of Faculty:10-20 • Duration 9 months vs. 2 years • Number of students: 10 – 40/ 200

  13. A long list of programs with a brief summary can be found at: www.siam.org/financialmath/programs.htm

  14. Baruch College MS, Applied Mathematics for Finance http://math.baruch.cuny.edu/masters.html Boston University MA, Mathematical Finance http://www.bu.edu/mathfn/ Brooklyn Polytechnic University MS, Financial Engineering http://www.poly.edu/catalog02-03/catalog02-03-25-financeeng.pdf Carnegie Mellon University MS, Computational Finance http://www.cmu.edu/mscf Claremont University MS, Financial Engineering Management http://www.cgu.edu/fineng/ Columbia University MS, Industrial Engineering and Operations Research http://www.engineering.columbia.edu/students/academics/dept/ieor.php Columbia University Masters in Mathematics of Finance http://www.math.columbia.edu/department/masters_finance.shtml

  15. Cornell University MS, Engineering in Operations Research and Industrial Engineering http://www.orie.cornell.edu/ Florida State University MS, Financial Mathematics http://www.math.fsu.edu/~smith/Guides/finmath.html Georgia Institute of Technology MS, Quantitative and Computational Finance http://www.qcf.gatech.edu/ George Washington University MS, Finance http://www.gwu.edu/~finance/ New York University, Courant Institute of Mathematical Sciences MS, Mathematical Finance http://www.math.nyu.edu/financial_mathematics/ North Carolina State University MS, Financial Mathematics http://www.math.ncsu.edu/finmath

  16. OGI School of Science and Engineering MS, Computational Finance http://www.cse.ogi.edu/CompFin/ Oklahoma State University MS, Quantitative Finance http://www.siam.org/financialmath/www.bus.okstate.edu/msqfe Princeton University MS, Finance http://www.princeton.edu/~bcf/ Purdue University MS degree in Mathematics with Computational Finance Specialization http://www.math.purdue.edu/academics/graduateProgram/cfp.php MS degree in Statistics with Computational Finance Specialization http://www.stat.purdue.edu/compfinance/ Rutgers University Masters of Quantitative Finance http://business.rutgers.edu/graduate/mqf/default.htm Stanford University MS, Financial Mathematics http://math.stanford.edu/FinMath/

  17. University of California, Berkeley MS, Financial Engineering http://www.haas.berkeley.edu/MFE University of Chicago MS, Financial Mathematics http://www-finmath.uchicago.edu/ University of Michigan MSE in Financial Engineering http://interpro.engin.umich.edu/fep University of Southern California MS, Mathematical Finance http://www.usc.edu/dept/LAS/CAMS/MF/ University of Toronto MMF, Masters of Mathematical Finance http://www.mmf.utoronto.ca/main.php3 University of Waterloo Masters in Finance http://arts.uwaterloo.ca/ACCT/finance/

  18. Ranking of Financial Engineering Programs

  19. General Comments About the Top Five Programs

  20. Haas School of Business • Master’s in Financial Engineering • One year program • Faculty from Haas, UCLA, UC Irvine • Theoretical (Mathematical) Finance and Computer Modeling

  21. Columbia University • Two Programs offered • Industrial Engineering and Operations Research • MA in Mathematics with Specialization in Mathematics of Finance • Emphasis on Stochastics, Numerics and Financial Applications

  22. New York University • Program of 12 courses offered in Mathematics Department • Financial Theory and Modeling • Mathematical Foundations • Computational Skills

  23. Cornell University • Financial Engineering offered in the School of Operations Research and Industrial Engineering • Emphasis on Applied Mathematics • Collaboration with Management

  24. University of Chicago • Offered by the Mathematics Department • Emphasis on Mathematics: Analysis, Probability, Stochastic Processes • Minor collaboration with School of Business • Numerous speakers presenting applications

  25. Carnegie Mellon • Master of Science in Computational Finance • Customized • Computational • Centered

  26. General Conclusions • Large variety of programs • Housed in various Schools and Departments • Mostly at the Masters Level • Coursework includes Finance, Math, Statistics and Computer Science

  27. Prospects • If current trends of globalization, deregulation, uncertainty and risk continue, demand for computational finance will remain strong • Robert Shiller: The New Financial Order: Risk in the 21st Century

  28. Conclusions • Computational Finance as an exciting new field • How to best train Computational Financial Analysts? • Computer Science + Finance, or • Finance + Computer Science?

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