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Quantpractices

Quantitative analysts utilize a variety of mathematical and statistical methods, including statistics, calculus, and linear algebra, often drawing from fields like computer science and physics. They employ numerical methods such as finite difference, Monte Carlo simulations, and ordinary least squares for various financial analyses. Despite their mathematical expertise, many quants have limited formal training in mainstream economics, focusing instead on quantitative techniques for financial modeling and risk management.

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8 views1 page

Quantpractices

Quantitative analysts utilize a variety of mathematical and statistical methods, including statistics, calculus, and linear algebra, often drawing from fields like computer science and physics. They employ numerical methods such as finite difference, Monte Carlo simulations, and ordinary least squares for various financial analyses. Despite their mathematical expertise, many quants have limited formal training in mainstream economics, focusing instead on quantitative techniques for financial modeling and risk management.

Uploaded by

derkuzesta
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We take content rights seriously. If you suspect this is your content, claim it here.
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Mathematical and statistical approaches

[edit]

Further information: Mathematical finance, Financial modeling § Quantitative finance,


Outline of finance § Mathematical tools, and Financial economics § Derivative pricing

Because of their backgrounds, quantitative analysts draw from various forms of mathematics:
statistics and probability, calculus centered around partial differential equations, linear
algebra, discrete mathematics, and econometrics. Some on the buy side may use machine
learning. The majority of quantitative analysts have received little formal education in
mainstream economics, and often apply a mindset drawn from the physical sciences. Quants
use mathematical skills learned from diverse fields such as computer science, physics and
engineering. These skills include (but are not limited to) advanced statistics, linear algebra
and partial differential equations as well as solutions to these based upon numerical analysis.

Commonly used numerical methods are:

Finite difference method – used to solve partial differential equations;


Monte Carlo method – Also used to solve partial differential equations, but Monte Carlo
simulation is also common in risk management;
Ordinary least squares – used to estimate parameters in statistical regression analysis;
Spline interpolation – used to interpolate values from spot and forward interest rates
curves, and volatility smiles;
Bisection, Newton, and Secant methods – used to find the roots, maxima and minima of
functions (e.g. internal rate of return, interest rate curve-building.)

Techniques

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