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- Financial models

Black–Scholes model

The Black–Scholes /ˌblæk ˈʃoʊlz/ or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments. From the parabolic partial d

Goldman Sachs asset management factor model

Goldman Sachs asset management (GSAM) factor model is one of the quantitative/ factor models used by financial analysts to assess the performance and financial condition of a company. Typically are ba

Rendleman–Bartter model

The Rendleman–Bartter model (Richard J. Rendleman, Jr. and Brit J. Bartter) in finance is a short-rate model describing the evolution of interest rates. It is a "one factor model" as it describes inte

Cox–Ingersoll–Ross model

In mathematical finance, the Cox–Ingersoll–Ross (CIR) model describes the evolution of interest rates. It is a type of "one factor model" (short-rate model) as it describes interest rate movements as

Constant elasticity of variance model

In mathematical finance, the CEV or constant elasticity of variance model is a stochastic volatility model that attempts to capture stochastic volatility and the leverage effect. The model is widely u

Chepakovich valuation model

The Chepakovich valuation model is a specialized discounted cash flow valuation model, originally designed for the valuation of “growth stocks” (ordinary/common shares of companies experiencing high r

Heath–Jarrow–Morton framework

The Heath–Jarrow–Morton (HJM) framework is a general framework to model the evolution of interest rate curves – instantaneous forward rate curves in particular (as opposed to simple forward rates). Wh

Johnson binomial tree

No description available.

Capital asset pricing model

In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversi

Hamada's equation

In corporate finance, Hamada’s equation is an equation used as a way to separate the financial risk of a levered firm from its business risk. The equation combines the Modigliani–Miller theorem with t

Implied binomial tree

No description available.

Return on modeling effort

Return on modelling effort (ROME) is the benefit resulting from a (supplementary) effort to create and / or improve a model.

Barone-Adesi and Whaley

No description available.

Bootstrapping (finance)

In finance, bootstrapping is a method for constructing a (zero-coupon) fixed-income yield curve from the prices of a set of coupon-bearing products, e.g. bonds and swaps. A bootstrapped curve, corresp

Omega ratio

The Omega ratio is a risk-return performance measure of an investment asset, portfolio, or strategy. It was devised by Con Keating and William F. Shadwick in 2002 and is defined as the probability wei

Binomial options pricing model

In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Essentially, the model uses a "discrete-time" (lattice based) model of the

Brownian model of financial markets

The Brownian motion models for financial markets are based on the work of Robert C. Merton and Paul A. Samuelson, as extensions to the one-period market models of Harold Markowitz and William F. Sharp

Single-index model

The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock. The model has been developed by William Sharpe in 1963 and is commonly used in the fina

Fama–French three-factor model

In asset pricing and portfolio management the Fama–French three-factor model is a statistical model designed in 1992 by Eugene Fama and Kenneth French to describe stock returns. Fama and French were c

Black's approximation

In finance, Black's approximation is an approximate method for computing the value of an American call option on a stock paying a single dividend. It was described by Fischer Black in 1975. The Black–

Dividend discount model

In finance and investing, the dividend discount model (DDM) is a method of valuing the price of a company's stock based on the fact that its stock is worth the sum of all of its future dividend paymen

Martingale pricing

Martingale pricing is a pricing approach based on the notions of martingale and risk neutrality. The martingale pricing approach is a cornerstone of modern quantitative finance and can be applied to a

Jarrow–Turnbull model

The Jarrow–Turnbull model is a widely used "reduced-form" credit risk model. It was published in 1995 by Robert A. Jarrow and Stuart Turnbull. Under the model, which returns the corporate's probabilit

Carr–Madan formula

In financial mathematics, the Carr–Madan formula of Peter Carr and Dilip B. Madan shows that the analytical solution of the European option price can be obtained once the explicit form of the characte

Mid-year adjustment

No description available.

Garman-Kohlhagen model

No description available.

Drawdown (economics)

The drawdown is the measure of the decline from a historical peak in some variable (typically the cumulative profit or total open equity of a financial trading strategy). Somewhat more formally, if is

Black model

The Black model (sometimes known as the Black-76 model) is a variant of the Black–Scholes option pricing model. Its primary applications are for pricing options on future contracts, bond options, inte

Cheyette model

In mathematical finance, the Cheyette Model is a quasi-Gaussian, quadratic volatility model of interest rates intended to overcome certain limitations of the Heath-Jarrow-Morton framework. By imposing

Black–Scholes equation

In mathematical finance, the Black–Scholes equation is a partial differential equation (PDE) governing the price evolution of a European call or European put under the Black–Scholes model. Broadly spe

Black–Derman–Toy model

In mathematical finance, the Black–Derman–Toy model (BDT) is a popular short-rate model used in the pricing of bond options, swaptions and other interest rate derivatives; see Lattice model (finance)

Intertemporal CAPM

Within mathematical finance, the Intertemporal Capital Asset Pricing Model, or ICAPM, is an alternative to the CAPM provided by Robert Merton. It is a linear factor model with wealth as state variable

Markowitz model

In finance, the Markowitz model ─ put forward by Harry Markowitz in 1952 ─ is a portfolio optimization model; it assists in the selection of the most efficient portfolio by analyzing various possible

Black–Karasinski model

In financial mathematics, the Black–Karasinski model is a mathematical model of the term structure of interest rates; see short-rate model. It is a one-factor model as it describes interest rate movem

Ho–Lee model

In financial mathematics, the Ho–Lee model is a short-rate model widely used in the pricing of bond options, swaptions and other interest rate derivatives, and in modeling future interest rates. It wa

Affine term structure model

An affine term structure model is a financial model that relates zero-coupon bond prices (i.e. the discount curve) to a spot rate model. It is particularly useful for deriving the yield curve – the pr

Black–Litterman model

In finance, the Black–Litterman model is a mathematical model for portfolio allocation developed in 1990 at Goldman Sachs by Fischer Black and Robert Litterman, and published in 1992. It seeks to over

Financial modeling

Financial modeling is the task of building an abstract representation (a model) of a real world financial situation. This is a mathematical model designed to represent (a simplified version of) the pe

Bjerksund and Stensland

No description available.

Multiple factor models

In mathematical finance, multiple factor models are asset pricing models that can be used to estimate the discount rate for the valuation of financial assets. They are generally extensions of the sing

Fama–MacBeth regression

The Fama–MacBeth regression is a method used to estimate parameters for asset pricing models such as the capital asset pricing model (CAPM). The method estimates the betas and risk premia for any risk

Jamshidian's trick

Jamshidian's trick is a technique for one-factor asset price models, which re-expresses an option on a portfolio of assets as a portfolio of options. It was developed by Farshid Jamshidian in 1989. Th

Margrabe's formula

In mathematical finance, Margrabe's formula is an option pricing formula applicable to an option to exchange one risky asset for another risky asset at maturity. It was derived by William Margrabe (Ph

Mark to model

Mark-to-Model refers to the practice of pricing a position or portfolio at prices determined by financial models, in contrast to allowing the market to determine the price. Often the use of models is

Wilkie investment model

The Wilkie investment model, often just called Wilkie model, is a stochastic asset model developed by A. D. Wilkie that describes the behavior of various economics factors as stochastic time series. T

Hull–White model

In financial mathematics, the Hull–White model is a model of future interest rates. In its most generic formulation, it belongs to the class of no-arbitrage models that are able to fit today's term st

Multi-curve framework

No description available.

Model audit

A model audit is the colloquial term for the tasks performed when conducting due diligence on a financial model, in order to eliminate spreadsheet error. Model audits are sometimes referred to as mode

Longstaff–Schwartz model

No description available.

Stochastic volatility jump

In mathematical finance, the stochastic volatility jump (SVJ) model is suggested by Bates. This model fits the observed implied volatility surface well. The model is a Heston process for stochastic vo

Stochastic investment model

A stochastic investment model tries to forecast how returns and prices on different assets or asset classes, (e. g. equities or bonds) vary over time. Stochastic models are not applied for making poin

SABR volatility model

In mathematical finance, the SABR model is a stochastic volatility model, which attempts to capture the volatility smile in derivatives markets. The name stands for "stochastic alpha, beta, rho", refe

Financial Modelers' Manifesto

The Financial Modelers' Manifesto was a proposal for more responsibility in risk management and quantitative finance written by financial engineers Emanuel Derman and Paul Wilmott. The manifesto inclu

Arrow–Debreu model

In mathematical economics, the Arrow–Debreu model suggests that under certain economic assumptions (convex preferences, perfect competition, and demand independence) there must be a set of prices such

Kalotay–Williams–Fabozzi model

No description available.

Arbitrage pricing theory

In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by ec

Carhart four-factor model

In portfolio management, the Carhart four-factor model is an extra factor addition in the Fama–French three-factor model, proposed by Mark Carhart. The Fama-French model, developed in the 1990, argued

Datar–Mathews method for real option valuation

The Datar–Mathews Method (DM Method) is a method for real options valuation. The method provides an easy way to determine the real option value of a project simply by using the average of positive out

Expected shortfall

Expected shortfall (ES) is a risk measure—a concept used in the field of financial risk measurement to evaluate the market risk or credit risk of a portfolio. The "expected shortfall at q% level" is t

Lattice model (finance)

In finance, a lattice model is a technique applied to the valuation of derivatives, where a discrete time model is required. For equity options, a typical example would be pricing an American option,

Model risk

In finance, model risk is the risk of loss resulting from using insufficiently accurate models to make decisions, originally and frequently in the context of valuing financial securities. However, mod

Vanna–Volga pricing

The Vanna–Volga method is a mathematical tool used in finance. It is a technique for pricing first-generation exotic options in foreign exchange market (FX) derivatives.

Treynor–Black model

In Finance the Treynor–Black model is a mathematical model for security selection published by Fischer Black and Jack Treynor in 1973. The model assumes an investor who considers that most securities

Nelson-Siegel

No description available.

Smith–Wilson method

The Smith–Wilson method is a method for extrapolating forward rates. It is recommended by EIOPA to extrapolate interest rates. It was introduced in 2000 by A. Smith and T. Wilson for .

Adjusted present value

Adjusted present value (APV) is a valuation method introduced in 1974 by Stewart Myers. The idea is to value the project as if it were all equity financed ("unleveraged"), and to then add the present

Roll-Geske-Whaley

No description available.

Trinomial tree

The trinomial tree is a lattice-based computational model used in financial mathematics to price options. It was developed by Phelim Boyle in 1986. It is an extension of the binomial options pricing m

Edgeworth binomial tree

No description available.

Brace-Gatarek-Musiela model

No description available.

Chen model

In finance, the Chen model is a mathematical model describing the evolution of interest rates. It is a type of "three-factor model" (short-rate model) as it describes interest rate movements as driven

Merton model

The Merton model, developed by Robert C. Merton in 1974, is a widely used credit risk model. Analysts and investors utilize the Merton model to understand how capable a company is at meeting financial

Project finance model

A project finance model is a specialized financial model, the purpose of which is to assess the economic feasibility of the project in question. The model's output can also be used in structuring, or

Asset pricing

In financial economics, asset pricing refers to a formal treatment and development of two main pricing principles, outlined below, together with the resultant models. There have been many models devel

LIBOR market model

The LIBOR market model, also known as the BGM Model (Brace Gatarek Musiela Model, in reference to the names of some of the inventors) is a financial model of interest rates. It is used for pricing int

Korn–Kreer–Lenssen model

The Korn–Kreer–Lenssen model (KKL model) is a discrete trinomial model proposed in 1998 by Ralf Korn, Markus Kreer and Mark Lenssen to model illiquid securities and to value financial derivatives on t

Vasicek model

In finance, the Vasicek model is a mathematical model describing the evolution of interest rates. It is a type of one-factor short-rate model as it describes interest rate movements as driven by only

Fuzzy pay-off method for real option valuation

The fuzzy pay-off method for real option valuation (FPOM or pay-off method) is a method for valuing real options, developed by Mikael Collan, Robert Fullér, and József Mezei; and published in 2009. It

Financial models with long-tailed distributions and volatility clustering

Financial models with long-tailed distributions and volatility clustering have been introduced to overcome problems with the realism of classical financial models. These classical models of financial

Heston model

In finance, the Heston model, named after Steven L. Heston, is a mathematical model that describes the evolution of the volatility of an underlying asset. It is a stochastic volatility model: such a m

Implied trinomial tree

No description available.

Chan–Karolyi–Longstaff–Sanders process

In mathematics, the Chan–Karolyi–Longstaff–Sanders process (abbreviated as CKLS process) is a stochastic process with applications to finance. In particular it has been used to model the term structur

T-model

In finance, the T-model is a formula that states the returns earned by holders of a company's stock in terms of accounting variables obtainable from its financial statements. The T-model connects fund

PSA prepayment model

The PSA Prepayment Model is a prepayment scale developed by the Public Securities Association in 1985 for analyzing American mortgage-backed securities. The PSA model assumes increasing prepayment rat

Bachelier model

The Bachelier model is a model of an asset price under brownian motion presented by Louis Bachelier on his PhD thesis The Theory of Speculation (Théorie de la spéculation, published 1900). It is also

Consumption-based capital asset pricing model

The consumption-based capital asset pricing model (CCAPM) is a model of the determination of expected (i.e. required) return on an investment. The foundations of this concept were laid by the research

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