Wednesday, October 12, 2005

Quantitative Finance

The field of quantitative finance is rich and interesting. When I mention the term "Financial Engineering" many people quip "Oh, now finance too has engineering..". Well, its aptly called that way because of the application of mathematical and engineering methods to problems in finance. But there is a lot of physics too. When I see Brownian Motion being applied to stock prices, there is a part of me thatsvery happy to use a tiny bit of the statistical physics that I learnt.
2005 is the world year of physics. Someone mentioned this is because, in 1905, Einstein published three most important papers in physics history - general relativity, photoelectric effect and brownian motion. Its surprising how a 100 years later brownian motion is applied in economics and finance to study stock prices like random motion of particles in a fluid. The famous black scholes model for option pricing uses quantum physics to make it simpler, unlike when it uses Ito's calculus.
Another important use of physics in finance is attributed to Feynman, for the sum-over-paths integral method (electromagnetic particles).
Econophysics is a relatively new branch, which lists a whole bunch of other applications of mathematical physics to finance. http://www.derivativesstrategy.com/ has some nice comic strips on trades, hedge funds and other aspects of finance.

Physics

Physics is a beautiful subject. I was never an outstanding student, but I enjoyed every bit of what I learnt. Its amazing how it explains everything from the so big to the so small. Personally I feel that it forms a strong base for some of the engineering streams. Feynman Lectures on Physics is a treat to every student who likes physics or wants to know about physics. Sometimes, I feel too much of Mathematics just overshadows the physics behind. Nevertheless, from what I've observed, matrices and differential equations are a very integral part of physics.

Wednesday, October 05, 2005

Its good to be first...

Its amazing how two places geographically so close to each other can be so different in life style.I don't want to say much about NYC. It has all the frenzy, chaos, excitement, rush, activity and madness about it. Delaware, on the other hand is so laid back, like life on first gear. They are like day and night. Sometimes, I wonder why people who come from NYC don't carry a part of that fever to this place. Downtown Wilmington is slightly better, you can see (a few) people around. UD is a nice place, as all universities are. There's nothing else. Though there is some charm to the quietness, it gets unnerving at times. Its not amusing to stare into wilderness always. But I guess, I've learnt to appreciate each of these places because of the other. I think, I may miss Delaware when I move to NYC!