Crunching Numbers

A line from the musical Cabaret says “money makes the world go round.” Indeed, we see the validity of this quote all around us in present days. Our society relies heavily on money, and everything has its price. For the most part, if people want to eat, they go to a market to buy groceries or they eat out. We obviously can’t walk around in our birthday suits, so we are forced to purchase clothes anywhere we can from the Goodwill to Neiman Marcus. There isn’t a day that goes by that someone somewhere in the world doesn’t use money. Compared to other areas, the academic discipline of finance (the study of how funds are obtained and invested) is still only a teenager, having come to the spotlight from economics after World War II (Chance and Peterson 447). Currently, many fields have contributed to its every growing popularity.

One possible explanation for finance’s sudden rise in status could be attributed to the uncertainty of today’s economy. Buying, selling, and investing in stock is a risky step to take, but thankfully, there is such a thing as valuation. According to Chance and Peterson, “valuation is the science, and sometimes the art, of estimating what something in the future is worth today” (Chance and Peterson 448). John Burr adds that “the appropriate price for stock is the present value of all future dividends paid to its owner” (Chance and Peterson 448). This knowledge comes in handy on many levels, but mostly importantly, it gives one a bit of assurance as to how his/her money should be handled and what steps to take to guarantee than none of it is lost.

Since business has a lot to do with crunching numbers, mathematicians have made a great impact in the world of finance. Bachelier’s model, Brownian motion, Ito’s Limma, Black-Scholes model, and many other equations have attributed to a better understanding of this discipline. As a result of the Brownian motion, economists were able to create “various new pricing schemes”; after the Black-Scholes model, “corporations and investment fund managers were barraged with new products, such as swaps, structures notes, asset-backed securities and exotic kinds of options” (Chance and Peterson 448). Many people might not be fond of mathematics, but it is clear that a greater indulgence of this complex subject can lead to definite comprehension of financial matters.