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BUSINESS MATHEMATICS
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Among the Nobel Laureates in Economics more than 60% were
Economists who have done pioneering work in Mathematical
Economics.These Economists not only learnt Higher Mathematics
with perfection but also applied it successfully in their higher pursuits
of both Macroeconomics and Econometrics.
A Mathematical formula (involving stochastic differential
equations) was discovered in 1970 by Stanford University Professor
of Finance Dr.Scholes and Economist Dr.Merton.This achievement
led to their winning Nobel Prize for Economics in 1997.This formula
takes four input variables-duration of the option,prices,interest rates
and market volatility-and produces a price that should be charged for
the option.Not only did the formula work ,it transformed American
Stock Market.
Economics was considered as a deductive science using verbal
logic grounded on a few basic axioms.But today the transformation
of Economics is complete.Extensive use of graphs,equations and
Statistics replaced the verbal deductive method.Mathematics is used
in Economics by beginning wth a few variables,gradually introducing
other variables and then deriving the inter relations and the internal
logic of an economic model.Thus Economic knowledge can be
discovered and extended by means of mathematical formulations.
Modern Risk Management including Insurance,Stock Trading
and Investment depend on Mathematics and it is a fact that one can
use Mathematics advantageously to predict the future with more
precision!Not with 100% accuracy, of course.But well enough so
that one can make a wise decision as to where to invest money.The
idea of using Mathematics to predict the future goes back to two 17th
Century French Mathematicians Pascal and Fermat.They worked
out probabilities of the various outcomes in a game where two dice
are thrown a fixed number of times.
Saylor - Personal Name
6th Edition
NONE
BUSINESS MATHEMATICS
Management
English
2006
1-224
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