Re: MATHEMATICA AND FINANCIAL CALCULATIONS?
- To: mathgroup at smc.vnet.net
- Subject: [mg49116] Re: MATHEMATICA AND FINANCIAL CALCULATIONS?
- From: astanoff at yahoo.fr (Valeri Astanoff)
- Date: Thu, 1 Jul 2004 05:26:48 -0400 (EDT)
- References: <firstname.lastname@example.org>
- Sender: owner-wri-mathgroup at wolfram.com
barb28 at rock.com (barb28) wrote in message news:<cbu3fd$5nc$1 at smc.vnet.net>... > Hello, > > I am under the impression that mathematica is the > standard for all types of engineering and other > scienetific calculations. > > My question is, is mathematica also the standard > for financial calculations, for instance for > real estate? or is it primarily for the scientific > world. > > I am asking, because I am trying to find the high > quality standard for financial calucations, and of course, > mathematica would do these types of calculations, but > was wondering if for plain old run of the mill > financial calculations, if a spreadsheet like excel > was the way to go. > > Please forgive my grammar and syntax if it is not > coming through ok. Any responses would be most > appreciated, and please post here in the public > forum. Thankyou. For plain financial calculations, a spreadsheet like Excel is ok, but for financial modelling, many experts disagree, and so does for instance William T.Shaw in the first chapter of his book "Modelling Financial Derivatives with Mathematica" : "Spreadsheet Woes There are many problems with spreadsheet environments. An extensive discussion of the issues is given by R. Miller (1990) in Chapter 1 of his text, Computer-Aided Financial Analysis, where he outlines several principles to which financial modelling environments should conform, and explains why spreadsheets fail to meet them. My own simplistic interpretation of Miller's views (i.e., the author's own prejudice) is that spreadsheets are the best way yet invented of muddling up input data, models, and output data. More seriously, their fabled capability for doing "what-if" calculations is at once both erroneous and misleading. In the particular context of derivatives modelling, the modelling of Greeks within spreadsheets by revaluing for neighbouring values of the parameters is an abomination. This is not to say that computing differences in addition to partial derivatives is not a valuable exercise - this separate information can reveal interesting pathology. The point is that you should use exact calculus wherever possible to extract partial derivatives. As Miller points out, the "what-if" concept is also limited to numerical variations. We want a system where we can also vary structural properties ("what if American rather than European"). This leads rather naturally to the desire for an object-oriented approach. There is one virtue of the spreadsheet environment, and that is the tabular user interface. There is no doubt, that for instruments requiring a small number of input and output parameters, such a table of data for several such instruments is extremely useful. However, even the interface virtues of spreadsheets are strained by the complexities of instruments such as Convertible Bonds. The information relevant to one such bond can easily require several interlinked sheets."