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Finance and Computation!

September 6, 2013

So, lately I’ve been looking at Finance and the basic concepts underlying it. What is a stock, how do you value a company, what is a stock market index…. Well, these are just the most basic concepts which EVERY person on this planet MUST know! Once you know what is what, then you begin wondering how does it happen? And of course, why does it happen! Why does the stock price of a particular company begin falling even before a bad news regarding the same company is out? What is a safe long term investment, and how do you evaluate risk?

These are only a few questions that might cross your mind. But Finance is HUGE. Its broad, massive, some even say…”Well there’s love, and then there’s finance!”. So HOW exactly do some people manage to get their so-called predictions right? When you see Hedge Funds and other Trading firms making millions of dollars, you MUST realize that they definitely have methods. And let me tell you guys, Mathematics and its power is the solution to ALL.

Computational Finance, Wikipedia defines it as, the study of data and algorithms currently used in finance and the mathematics of computer programs that realize financial models or systems. Easy? But then what resources do you have at your disposal to exploit such mathematical formulations or algorithms?

There is a relevant course named Computational Investing on Coursera. Browsing through the course logistics, I found QuantSoftware ToolKit (QSTK). This is an amazing Python-based open source software framework. This particular Python package depends on libraries/packages like numpy, scipy, matplotlib, etc. that I had written about in my previous post. The installation guidelines can be found here. And once you have it working, all that you do is experiment, play around or fidget around with its modules.

Happy Setting up and experimenting. Stay tuned for more on this…..

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