Quantitative Finance, also known as Mathematical Finance, is a complex field of applied mathematics that is primarily concerned with the financial markets. Quantitative finance possesses a close relationship with financial economics, which is in essence, the underlying theory of Quantitative Finance.

In most forms, Quantitative Finance will derive and subsequently extend the numerical or mathematical model that is originally suggested by a financial economic theory. For example, a financial economist will study the structural relationships and reasons why a corporation may trade under a specific share price, while a Quantitative Financial economist will assume the share price as a given, and attempt use stochastic calculus or other advanced forms of mathematics to elucidate upon the fair value of derivatives of the underlying stock. This method, which is known as the valuation of options, is one of the principle areas of focus within the field of Quantitative Finance.

The values of an option contract are dependent on a number of different variables, in addition to the share price of the underlying asset. The evaluation process is extremely complex; multiple pricing models are used to distinguish the fair value of derivatives through an analysis of the following concepts: Moneyness, rational pricing, put-call parity, and option time value.

In addition to sharing similar theories or models with financial economics, Quantitative Finance also overlaps with the field of computational finance (also referred to as financial engineering). In most areas of the study, these two fields are largely synonymous; however, one glaring theoretical differences exists where computational finance focuses on application, whereas Quantitative Finance will predominantly investigate derivation and modeling.

In a broad sense, the theorem of arbitrage-free pricing is an application which relates arbitrage opportunities with risk neutral devices or measures that are equivalent to the original probability measure. This theorem, in a finite state market has two parts: 1.) There is no arbitrage if and if a risk neutral measure is equivalent to the original probability measure. The second aspect of the arbitrage-free pricing model states that in a situation where arbitrage is absent, a market is viewed as complete if and only if there is a unique risk measure that is equivalent to the original probability measure.

The Field of Quantitative Finance grew from the novel The Theory of Speculation, which was introduced in 1900 by Louis Bachelier. This introduction to Quantitative Finance discussed the use of Brownian motion to evaluate the earliest forms of stock options. Although the book sparked a revolution in regards to the evaluation of option pricing, it hardly caught any attention outside of the academic population.

Another influential work of Quantitative Finance was the theory of portfolio optimization by Harry Markowitz. This publication used mean-variance to estimate portfolios to judge investment techniques; eventually this theorem sparked a shift from the concept of trying to identify the best individual stock for a particular investment. The field of Quantitative Finance used a linear regression strategy to quantify the risk and return associated with an entire portfolio of stocks and fixed-income instruments to develop an optimized strategy used to develop a portfolio with the largest mean return subject to levels of variance. 

The Ministry of Finance is a government department responsible for enforcing and upholding various financial laws to effectively grow or maintain a stable economic environment in a given country. The Ministry of Finance implements a series of procedures to carry-out their responsibilities.

The typical Ministry of Finance will provide a nation with the following functions: advising the head of government regarding critical financial maneuvers; managing the nation’s budget; implementing taxation policies and organizing funding for various programs; addressing domestic policy and delivering strategies to ensure domestic economic growth; and handling all matters concerning international financial matters.

The Ministry of Finance, in most forms, is head by the minister of finance, who is a prominent member of a government cabinet. Additionally, the minister of finance, depending on the underlying nation, may carry the title of secretary of treasure or the chancellor of exchequer. Regardless of the title; however, every developed nation in the world has some form of a minister of finance and a Ministry of Finance department.

The minister of finance (head of a country’s Ministry of Finance) has numerous roles within a central government. Primarily, those countries that possess a form of federalism will house a Ministry of Finance within the particular state or provincial government body. That being said, the powers and specific roles of the Ministry of Finance and more specifically the minister of finance, will vary between governments. In some countries, such as Canada or New Zealand, the minister of finance will hold the most powerful position within a cabinet.

The most critical role of the Ministry of Finance is to balance the country’s fiscal budget and spending habits. As a result of this function, the Ministry of Finance may be viewed as an unpopular post if they are forced to raise taxes or limit spending in alignment with their nation’s budget or deficit.

Due to the hierarchy of the department, the minister of finance, is chiefly responsible for administering and affirming the decisions of the Ministry of Finance. All decisions are evaluated and subsequently made based off a thorough review of the particular nation’s expenditures, outlook and general economy. 

The Ministry of Finance, in the United States, is called the Department of Treasury and is head by the Secretary of the Treasury. The role of the Ministry of Finance in the United States is held in contrast to other developed nations, due to the separate Office of Management and Budget—the primary government agency responsible for drafting the budget of the United States.

A bank is a financial intermediary that acts a fundamental institution within the world of finance. A bank accepts deposits (from business entities and individuals) and subsequently channels these deposits into various lending activities, either directly through the delivery of personal or business loans or through the capital markets. In essence, a bank connects customers with capital deficits to other participating customers with capital surpluses.

Banking is a highly regulated industry; the coordinating government authorities impose varying restrictions on the financial activities instituted by banks. 

The definition of banking will vary based on location; countries impose differentiating legislation and restrictions on banks which will impede or encourage the bank’s fundamental objectives and lending strategies. Based on English common law, a ‘banker’ is defined as an individual who carries on the business of banking, which is a process that includes the delivery of the following functions: conducting current accounts for his or her customers, paying checks drawn on the individual’s account, and collecting checks distributed by his or her customers. 

In most common law jurisdictions, the banking industry is regulated by the Bills of Exchange Act. This piece of legislation universally codifies the law in relation to negotiable instruments, including the delivery and acceptance of checks; the Bills of Exchange Act contains a statutory definition of what a ‘banker’s’ role includes.

The varying definitions can evaluate a ‘banker’ as a body of individuals, whether incorporated or not, who will carry on the business of banking. This definition may seem circular; however, it is actually viewed as a functional body, because it ensures the legal basis for bank transactions such as checks is not dependent on how the bank is regulated or organized. 

The business of banking, in the majority of English common law countries, is not specifically defined by statute, but instead by common law. That being said, statutory definition of the business of banking is delivered in other English common law jurisdictions. When evaluating these definitions it is crucial to keep in mind that they are elucidating upon the business of banking as it pertains to legislation as oppose to a general sense. In a more specific sense, the majority of definitions are derived from government policy to regulate and supervise banks rather than regulating the actual business of banking.

The following examples are statutory definitions of the business of banking:

The business of banking describes the business of receiving money on a current or deposit account, as well as paying and collecting checks drawn by or paid in by customers of the bank. Additionally, the business of banking includes making advances to customers and receiving money from the general public through deposit or savings accounts, which are repayable on demand.

A banking system will act as payment agents through the conduction of checking or current accounts for customers, paying checks drawn by customers on the bank, and collecting checks which are deposited to customer checking accounts. The banking industry also enables customer payments via other payment methods, such as telegraphic transfers, EFTPOS and ATM’s.

Banks will borrow money by accepting funds that are deposited on current accounts by accepting term deposits and by issuing debt securities such as bonds and banknotes.

As many people have struggled to get their personal finance in order, especially as they seek the newest and expensive ‘must haves’, these same expensive pieces of technology now offer help in getting their user’s books in order.  

Now, Ipad, smart phone, and tablet users have a host of news applications that can help them do everything from manage their weekly grocery list to trading stocks with the push of a button.  These new forms of technology provide an engaging visual representation of the users finances, including charts, graphs, and alerts concerning their budget.  

Such technology comes at a time when it is easier than ever for consumers to make purchases, using online stores and auction sites.  Banking in general continues to move to the digital world, where transactions, deposits, withdrawals, and countless other economic activity takes place without any physical money exchanging hands.  

The emerging markets of the BRIC nations lead many to favor investing in their economies, as it was believed Brazil, Russia, India, and China were ready to join the major economies of the world.  While such held true, recent turmoil in the world markets has rocked the financial security of such investments.  

This year has been especially hard on foreign finance as market fears have moved money into United State markets.  However, the decline has not been due to lagging economies of the BRIC nations, but rather fears over European debt problems and a sluggish American economy.  

The United State’s economy, despite problems in recent years, has still been the engine driving these markets.  Imports from BRIC nations have helped bring them into their economic viability while lowered demand has hurt.  Should an economic recovery in the United States and Europe become sustained, it is expected that the emerging markets will be the greatest gainers as their finance opportunities expand.  

In an emergency meeting to decide how to deal with an impending Greek default, Euro Zone leaders are meeting in Brussels to discuss the possibility of a bailout to keep the Euro afloat and the European Union intact.  

The Greek problem has recently been exacerbated by referendums and protests indicating Greek citizens are no longer willing to cut their benefits, wages, or sale of assets.  Euro Zone members, especially the economically stronger nations of Germany and France, have pushed for further cuts in Greece in order to avoid default.   

Equally troubling are new reports that Italy is facing similar default issues, as political turmoil has created tension in Italy and uncertainty abounds.  Many in finance believe Italy is just as weak as Greece and may further pull down the value of the Euro while striking fear into international markets.  

A 401(K) hardship withdrawal is a form of loan permitted by the Internal Revenue Service, which enables a contributor to withdraw funds from their retirement plan to satisfy an immediate financial need. The Internal Revenue Service will permit a 401(K) hardship withdrawal if the following criteria are met:

• The 401(k) hardship withdrawal is needed to fulfill an immediate and important financial need

• The 401(k) hardship withdrawal is necessary to satisfy the particular need

• The contributor has no other means to fulfill the need—the individual cannot utilize any other source of funds 

• The 401(k) hardship withdrawal should not exceed the total amount needed by the individual

• The individual cannot contribute to their 401k plan for up to 6 months after the withdrawal date

• The individual must have first received all non-taxable distributions or loans available under their 401k plan

A 401(k) hardship withdrawal is typically permitted by larger companies; however, due to the high costs associated with administration, the maneuver may not be readily available with smaller companies. 

 

The following reasons are typically deemed acceptable by the Internal Revenue Service to engage in a 401(K) hardship withdrawal:

• Repairs of the contributor’s primary residence

• Funeral expenses

• Payments associated with home foreclosures

• Payments required to prevent the contributor from being forced out of their residence

• Payments needed for college tuition and other educational costs such as transportation, food, room & board etc.

 

• Purchase of a principal residence 

• Unexpected medical expenses 

All 401K hardship withdrawals are subject to 10% early withdrawal fees. Moreover, the funds secured from a 401k hardship withdrawal are also subject to income taxation. For instance, if an employee withdraws $10,000 as a hardship withdrawal, the individual will owe $1,000 in fees and will be taxed on the remaining $9,000. That being said, the following 401(K) hardship withdrawals will not be subject to the 10% penalty:

• The individual stops working, quits, retires or gets laid off at or after the age of 55

• The individual sustains unexpected medical debts that exceed 7.5% of their Adjusted Gross Income

• A court orders the individual to give funds to a divorced spouse or dependent 

• The individual sustains a permanent disability

• The individual stops working and begins taking regular payments based on a fixed schedule that will provide equal payments for the rest of their expected life; this provision must last 5 years or until the individual turns 59.5 years of age.

For a distribution from a 401(k) to be permitted on account of hardship, it must be used to satisfy an immediate and heavy financial reason. Moreover, the amount must be necessary to satisfy the particular financial need. The need of the employee will also include the need of the employee’s dependent or spouse. Whether the need is heavy and immediate will depend on the facts and circumstances; the above listed reasons are deemed acceptable by the Internal Revenue Service.

The amount of contributions available for a 401(K) hardship cannot be more than the amount of the individual’s total elective contributions (Roth contributions are also included) as of the date of distribution reduced by the amount of previous distributions. 

There is typically no limit on when an IRA holder may take a distribution from his or her IRA, however, the individual may be subject to unfavorable tax consequences. 

Certain distributions from an IRA account that are used for expenses similar to those that may be deemed eligible for hardship distributions from a retirement plan will be ruled exempt from the additional taxation on early distributions. 

A 401(K) retirement plan is a qualified profit-sharing account that allows an employee to contribute a portion of their wages to individual accounts. The basic rules of a 401K retirement law are as follows:

• An employer can contribute to employee accounts

• Elective salary deferrals are excluded from the employee’s taxable income (this does not hold true for designated Roth deferrals).

• Distributions—including all earnings—are includible in taxable income at retirement (this does not hold true for qualified distributions of designated Roth Accounts).

Within a 401(k) plan, an employee can choose to defer some of their salary; instead of receiving the deferred amount in their paycheck, the employee will delay or defer the funds. In this case, their differed funds are placed into the 401(k) plan. These deferred funds do not get taxed by the federal government or by the majority of state governments until it is withdrawn or distributed. 

The contribution limits, as stipulated by 401k retirement law, are as follows:

The employee cannot contribute more than $16,500 to his or her retirement plan for the 2011 taxable year. If the employee is at or over the age of 5, an additional “catch-up” contribution is permitted. The additional contribution amount for 2011 is $5,500. The individual employee may withdraw funds from his or her plan; however, 401k retirement law states that such a maneuver is subject to a 10% taxation if the individual is under the age of 59 ½. 

• The 401 (k) holder can utilize other retirement plans

• The 401 (k) can be held by a business of any size

• The 401 (k) holder is required to annually file a Form 5500

Because of 401 (K) retirement law, the plan has a number of benefits and drawbacks. The following list will provide the pros and cons of the retirement plan as regulated by 401k retirement law:

• A 401k retirement plan allows for greater flexibility in contributions.

• 401k retirement law enables an employee to contribute more to the plan than an IRA would allow

• A 401k is a good plan if cash flow is an issue for the employee

• 401k retirement law allows for optional participant loans and hardship withdrawals—these maneuvers offer added flexibility for employees

• 401k retirement law calls for a number administrative costs; these costs are typically higher than more basic arrangements. Moreover, the additional loan and withdrawal flexibility will add administrative burdens for the employer.

 

A 401k rollover occurs when a holder of a 401k transfers or rolls their account over into a new IRA (Individual Retirement Account). This process will typically occur when the holder changes employers or retires and wishes to seize better control over how their retirement funds are invested. 

If you leave your job—for any reason—and have a 401k account, you can decide between taking a lump sum (subject to taxation), which will keep the funds with your old employer (if permitted by the company), or have your 401k plan rolled over into a new IRA. 

The easiest way to avoid federal withholding taxes and all applicable mandatory state taxations is to directly rollover your 401k into an Individual Retirement Account. The IRA is a tax-deferred account that may be used to receive benefits distributed from an employer-qualified account. Because all earnings will accumulate on a tax-deferred basis your funds will accumulate more rapidly when compared to the percentage return in an otherwise identical taxable account.  

The IRA is not an investment in itself, but simply an account that holds future investments (stocks, annuities, bonds, mutual funds and market funds) on your behalf. The most basic reason for opening participating in a 401k rollover is to avoid the taxation associated with “cashing-out” your 401k. 

Cashing out your 401(k) is a bad idea; when you cash out your 401(k) you will be taxed on the withdrawal. The combination of federal and state taxes is significant due to the higher marginal tax rate associated with the withdrawal. Furthermore, you may be subjected to an additional 10% early withdrawal penalty if you have not reached the age of 59 ½. Using a combined federal and state tax rate of 35%, a $200,000 cashed-out 401(K) will cost you $70,000 in taxes. 

A 401k rollover into a traditional IRA will not impact your taxable income, because the traditional IRA is a pre-tax account. However, a 401(k) rollover into a Roth IRA will increase your taxable income and bump up your tax marginal rate into the subsequent tax bracket. 

To efficiently engage in a 401k rollover, follow these basic steps:

1. Open an Individual Retirement Account with any bank or financial institution that offers an Individual Retirement Account. Typically, you will be required to go through a discount broker; when choosing the institution, be sure to pick the company that offers the best types of investments at the lowest fees and commissions. 

2. You must notify your employer that you wish to participate in a 401(k) rollover. After notification, you must make sure your employer makes the check payable to the investment institution that you choose. 

3. Once the transfer is finalized, your money will be sitting in a new interest bearing investment such as a money market account. Invest your money according to an asset allocation plan; the precise investment options will depend on your particular investment company. In general, you will want to invest in a well-diversified portfolio of low cost and passively managed ETFs or mutual funds. 

Within the realm of international finance, a process exists in which the valuation of different currency and monetary systems are subject to fluctuation. This fluctuation in value, which typically illustrates a variance in trends or behaviors in which circulated currency belonging to an individual country or nation may result in a multitude of results. While the valuation of certain currency may render financial gain with regard to Currency Exchange, currency experiencing severe decreases in valuation may render financial loss upon Currency Exchange:

The economy of individual countries is considered to be a primary determinant of Currency Exchange rates. In addition to the financial stability latent within the respective economies of nations, the rate of production with regard to an individual import and export industry is crucial in the establishment of Currency Exchange rates.

The trends of Currency Exchange rates are considered to be instrumental in the assessment of valuation with regard to the respective stasis of monetary systems facilitated by specific countries and nations. Currency illustrating noticeable increases resulting from catalysts – ranging from a stimulated economy to financial prosperity – suffices for additional projections and expectations with regard to the international Currency Exchange

In tandem with the invention of the financial investment market, Currency Exchange may take place within a commercial setting. The Currency Exchange trading market operates as an international vehicle in which individual investors buy, sell, trade, and exchange various forms of currency belonging to a multitude of countries and nations; activity within this trading market drastically affects Currency Exchange rates – this is due to the fact that an overhaul of purchases of specific currencies may result in an increase in valuation.

Similarly, a steady decline with regard to specific Currency Exchange rates may result in collective activity undertaken with regard to the selling of that specific currency.

The following terminology is commonly used within the engagement of international Currency Exchange rates:

The Currency Exchange trading Market is the setting in which the trading and exchange of foreign currency takes place; upon the purchase or sales of specific currency systems, individuals hope to render economic gain as a result of the increase in that currency’s valuation.

Currency Exchange futures is an investment process in which individual investors will actively trade currency systems in the present with regard to estimations and predictions with regard to the stasis of value of those currencies within a future date. Currency Exchange futures typically require individuals to participate in prearranged trading activity on a pre-agreed time within the future; the conditions and results of that exchange activity is subject to – and contingent upon – the applicable valuation of that future date.