{"id":739,"date":"2013-07-28T08:41:26","date_gmt":"2013-07-28T12:41:26","guid":{"rendered":"https:\/\/engineering.jhu.edu\/magazine-archive\/?p=739"},"modified":"2017-07-28T09:18:18","modified_gmt":"2017-07-28T13:18:18","slug":"mathematical-finance-turbulent-times","status":"publish","type":"post","link":"https:\/\/engineering.jhu.edu\/magazine-archive\/2013\/07\/mathematical-finance-turbulent-times\/","title":{"rendered":"Mathematical Finance for Turbulent Times"},"content":{"rendered":"

\"financial-mathematics\"<\/a>
\nLet\u2019s say you\u2019re thinking of buying a power plant. You consider the cost of natural gas, the cost of converting the gas to electricity, and the price you\u2019ll get for the electricity. You weigh the costs of personnel, infrastructure, and equipment. You throw out an offer, hoping it\u2019s halfway reasonable against the randomly shifting market forces controlling all those numbers.<\/p>\n

No, there\u2019s not an app for that, but there is an equation, says Helyette Geman, research professor in the Financial Mathematics program<\/a>, housed within the Department of Applied Mathematics and Statistics<\/a>. Geman, who is also a professor of finance at Birkbeck, University of London, is internationally renowned in the world of what she calls mathematical finance\u2014a field that applies mathematical principles like probability theory to tools of the financial market trade, like stocks, derivatives, options, and commodities.<\/p>\n

\u201cMathematical modeling allows us to come up with a valuation for the power plant based on options. That\u2019s different from 20 years ago, [when it was] based on standard finance models,\u201d Geman says. \u201cSince we cannot read in a crystal ball, probability becomes our first tool.\u201d A scientific advisor to major financial institutions and insurance, energy, commodity, and mining companies for the last 21 years, Geman literally wrote the book on the field in 2005: Commodities and Commodity Derivatives: Energy, Metals and Agriculturals.<\/p>\n

Traditionally, 15 to 18 percent of Hopkins graduates have gone into financial services. The three-semester Financial Mathematics master\u2019s program, which began in fall 2008, is designed to allow students to explore the connection between applied math and finance beyond the undergraduate level, with the explicit goal of preparing them for careers in global financial institutions, government, and corporations, says the program\u2019s executive director, David Audley, PhD \u201972, a 20-year Wall Street practitioner.<\/p>\n

The curriculum is divided between courses in practice and applied math\u2014covering areas like quantitative portfolio theory, intro to theoretical derivatives, and risk measurement, as well as stochastic calculus and Monte Carlo analysis. Programming and communication skills are also emphasized, and a seminar series weaves it all together. Following two semesters of course work, each class of 20 to 25 students spends a semester interning in the financial industry before returning for its final semester.<\/p>\n

The program\u2019s timing has been fortuitous, Audley says: Students have had front-row seats to the credit crisis and the gradual transformation that has followed. New regulations are forcing investment firms to manage risk differently, creating a market for graduates who understand quantitative techniques. And while it may not be obvious at first, those techniques are not so far removed from more traditional engineering branches like mechanical or civil engineering.<\/p>\n

\u201cThose typically rely on basic science, solve problems, make things, and do stuff. This is no different\u2014[it\u2019s just that] the fundamental science is all construed by humans,\u201d Audley says, comparing risk management and hedging to the control theory and feedback control used to help a pilot land a plane in turbulence. \u201cThe turbulence is like the markets, and we say, \u2018Are there financial instruments like the instruments in a plane to get us safely on the ground?\u2019\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

A popular graduate program allows students to explore the connection between applied math and finance.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[32],"tags":[],"class_list":["post-739","post","type-post","status-publish","format-standard","hentry","category-currents","issue-summer-2013"],"acf":[],"yoast_head":"\nMathematical Finance for Turbulent Times - JHU Engineering Magazine<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/engineering.jhu.edu\/magazine-archive\/2013\/07\/mathematical-finance-turbulent-times\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Mathematical Finance for Turbulent Times - JHU Engineering Magazine\" \/>\n<meta property=\"og:description\" content=\"A popular graduate program allows students to explore the connection between applied math and finance.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/engineering.jhu.edu\/magazine-archive\/2013\/07\/mathematical-finance-turbulent-times\/\" \/>\n<meta property=\"og:site_name\" content=\"JHU Engineering Magazine\" \/>\n<meta property=\"article:published_time\" content=\"2013-07-28T12:41:26+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2017-07-28T13:18:18+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/engineering.jhu.edu\/magazine-archive\/wp-content\/uploads\/2014\/06\/financial-mathematics.jpg\" \/>\n<meta name=\"author\" content=\"Abby Lattes\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Abby Lattes\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"NewsArticle\",\"@id\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/\"},\"author\":{\"name\":\"Abby Lattes\",\"@id\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/#\\\/schema\\\/person\\\/0244393be370fbc3ead8ec26062e9742\"},\"headline\":\"Mathematical Finance for Turbulent Times\",\"datePublished\":\"2013-07-28T12:41:26+00:00\",\"dateModified\":\"2017-07-28T13:18:18+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/\"},\"wordCount\":521,\"commentCount\":0,\"image\":{\"@id\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/wp-content\\\/uploads\\\/2014\\\/06\\\/financial-mathematics.jpg\",\"articleSection\":[\"Currents\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/\",\"url\":\"https:\\\/\\\/engineering.jhu.edu\\\/magazine-archive\\\/2013\\\/07\\\/mathematical-finance-turbulent-times\\\/\",\"name\":\"Mathematical Finance for Turbulent Times - 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