1. Pricing of financial derivatives: Financial derivatives refer to financial instruments whose value depends on the prices of other assets (such as stocks, bonds, currencies, etc.). ) financial mathematics determines the price of financial derivatives by establishing mathematical models, which provides investors with the basis for decision-making.
2. Risk management: Financial institutions face various risks, such as market risk, credit risk and operational risk. Financial mathematics helps financial institutions to identify, evaluate and manage these risks by establishing risk measurement models.
3. Portfolio optimization: When investing, investors need to consider how to allocate funds to maximize returns or minimize risks. Financial mathematics provides investors with investment advice by establishing a portfolio optimization model.
4. Interest rate model: Interest rate is one of the most important variables in the financial market. Financial mathematics predicts the impact of interest rate changes on financial markets by establishing interest rate models.
5. Option pricing: Option is a financial derivative, and its holder has the right to buy or sell an asset at a specific price at a certain time in the future. Financial mathematics provides theoretical basis for option trading by establishing option pricing model.