World of Quant Finance: - EQUANT Learing

World of Quant Finance:

The world of finance is divided into 3 segments:

1. Fundamental Analysis – Is all about trying to determine intrinsic value or ‘correct’ worth of a company by studying Balance Sheet, Income Statement and Cash flow Statement. This is getting into heart of the firm and focusing on accounting rules and projections. This is one of the best method to determining  stock price but this method comes with limitation related to complexity of understanding financial statement and assumptions related to fair market value of complex financial instrument on balance sheet, even if we overcome above hurdle ‘The market can stay irrational longer than you can stay solvent’. In other words, even if you have perfect model for the value of firm it doesn’t mean you can make money. You have to find some mispricing and then hope that the rest of the world starts to see your point of view.
2. Technical Analysis – Is when you don’t care anything about the company or industry other than information contained within its stock price history and volume of trading.  Principle behind Technical analysis is that market prices reflect all relevant information. Technical Analyst uses chart pattern such as head and shoulder, technical indicator, moving average and trend using line of support, resistance. Technical Analyst monitor investor sentiment and try to understand whether they are bearish (investor expect downward price movement) or bullish (investor expect upward price movement).
3. Quantitative Finance – Is all about treating financial quantities such as stock prices or interest rates as random and then choosing best models for that randomness. Quantitative finance combines mathematics, computer science, numerical analysis and economics with extensive focus on stochastic process which is from family of Brownian motion used to model stock price. Quantitative finance is used to explain derivative pricing (asset whose value derived from other assets) and construct algorithms using numerical analysis to price securities.

This is introductory article – shortly there will be detailed introduction in all 3 segment with extensive overview on Quantitative Finance as there has been lot of interest in recent year from all community.