Why it is important to understand math to study finance?


We use math every day. Sometimes we are not even aware of that. We use it when we manage money and prepare food. We need math to figure out the distance and time. Also, we use it to understand loans for schooling, cars, and homes. In schools and colleges, math is in constant use. For example, when teachers are grading college papers, they add up the points.

It is crucial to understand math if you want to study finance. In following lines we will present fourteen cases when math is related to finance and business.

Why it is important to understand math to study finance?

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Financial mathematics

Financial math entails applying math formulas and equations to financial problems, market modeling, and data analysis. Adolescents who decide to study financial math will be able to choose between many job positions later. Various job positions use financial math. That includes financial analysts, bankers, data scientists, and business intelligence analysts. Financial analysts use math to analyze market data, find patterns in data, and predict financial opportunities and risks. Bankers use math for budgeting, saving, investing, and spending.

One of the tasks of data scientists is to detect a fraud. They also deal with risk management within the finance industry. Business intelligence analysts use statistics and analytics to write reports and build dashboards that help company turn data into actionable insights. All of these positions require degrees in math, finance, statistics, computer science or economics. And when boss say: ”do math for me” you will be able to complete the task. Math degree will bring you opportunity to deal with financial math easily. So don’t hesitate to work hard and write as many as essays about finance on college.

How mathematics can help finance students?

Financial Engineering

Financial engineering involves using the math tools to solve financial problems. Every company needs financial engineers. They use their knowledge to deal with risk management and analytics and technology and algorithmic finance. They also explore behavioral finance and investment analysis, and many other financial fields.

Financial Planning

Math helps companies to plan their financial future. Financial planning is process of assessing the current financial situation of one company. It helps identifying future financial goals and how to achieve them. It is document that shows company’s financial growth. Every firm has financial planner. It is an employee or team of employees who creates a strategy to meet long-term financial goals.

Risk management

Math students learn all about statistics, probability, and calculus. These fields help them predict risks in financial markets. Math studies encourage students to understand and manage uncertainties related to investments. Every company needs experts to deal with risks in investments. Risk management could also be applied on student’s contract for grades. Every student knows that achieving 90% of preset expectations mean A. That way, students could calculate how much effort they need to put in for the grade they want.

Quantitative Analysis

Quantitative Analysis use numbers and statistics to figure out how good an investment is. It looks at data and makes decisions about investments and other business operations. Quantitative Analysts find patterns in massive data sets. They point out on the difference between profit loss and profit gain. They also lower company’s risks by discovering the ideal balance between a little risk and the maximum profit the company would achieve.

Asset Valuation

Finance students use math techniques to deal with many financial problems. One of these problems can be asset valuation. That includes the process of determining the fair market or present value of assets. Then mathematicians use discounted cash flow (DCF) analysis, option pricing models (Black-Scholes), and bond valuation formulas.

Financial modeling

Math plays crucial role in financial modeling. Financial models help in making decisions within a company. Analysts use financial models to predict future outcomes and realize assess investment opportunities. These models also help them plan the various scenarios and see the potential both risks and good moves.

Time value of money

Finance students should understand time value of money. It is fundamental item in finance. It practically means that a sum of money is worth more now than the same sum of money in the future. And math will explain that changes. It happens because of interest rates and inflation. Furthermore, when it comes to investments, time value of money can grow only through investing. It means that delayed investment is a lost opportunity.


Econometrics includes using statistics methods to develop theories or test existing hypotheses in economics or finance. It also can be used in forecasting future economic or financial trends. As well as making meaningful interpretations.

Derivatives and Hedging

Students should write a research paper about hedging derivates. They will discover that hedging entails a trade that is made with the purpose of reducing the risk of adverse price movements in another asset. On the other hand, derivatives are securities that move in correspondence to one or more underlying assets. Derivatives can be effective hedges against their underlying assets. And the relationship between the two is more or less clearly defined.

Capital budgeting

Math will also help finance students understand capital budgeting. It is a method of estimating the financial viability of an investment over the life of investment. It focuses on cash flows, not on profits. Mathematic techniques used in capital budgeting are net present value (NPV) and internal rate of return (IRR). They are used to determine profitability and viability of an investment.

Interest Rates and Compounding

Those students who want to become bankers should understand interesting rates and compounding. Interesting rate is the price you pay when you borrow the money. That includes original amount and a certain percentage of the loan amount as interest. It can refer to student loan, a credit card, or mortgage. And compounding involves forming a large base on which your earnings can accumulate when you add your investment earnings to your principal.

Corporate Finance Analysis

Corporate financial analysis also uses math. It is a quantitative method of evaluating a company’s financial position and the market value of its stock. Analyzing a company’s financial statements, assessing profitability, liquidity, and solvency, and making investment recommendations are job for someone with math degree. Students in university business programs practice corporate finance analysis. They use corporate financial analysis to produce case studies for discussion in the classroom. So they will be ready to deal with finance analysis in any company they apply for job.

Quantitative Trading

Quantitative Trading combines math, finance and computer programming. Besides computer algorithms and programs, it uses simple or complex mathematics models to identify and capitalize on available trading opportunities. And what quantitative traders exactly do? They can write a simple program that brings out the winners during an upward momentum in the markets. During the next market upturn, the program will buy those stocks.

Quantitative Trading

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Understanding Economic Data

Economic data are data that describe an actual economy. That includes past or present economy. Every company explores economic indicators in order to assess, measure, and evaluate the overall state of the macro economy. Economic indicators are GDP growth rate, interest rate, inflation rate, balance of trade, and many others. These indicators are often analyzed by using mathematical techniques that students adopt in university business programs.

A brief overview how business is related to financial math

It is very important for company to hire experts in financial mathematic. They help companies to maintain financial budget. Big businesses have a thousand things that require managing. So it is clear that companies need someone with financial knowledge to maintain the budget of the business.

Financial mathematicians also make excellent business strategies. They have creativity and knowledge to take business to the next level. Furthermore, they could also help marketing terms improvement. Nowadays, marketing is everything. It is necessary tool to impress your users. Business persons often fail in marketing tasks. Their knowledge simply doesn’t cover that field. Then financial mathematician enters the game to provide marketing tactics.


In previous lines we explained what financial mathematics is. We offer several job positions that math students can choose after college. We also pointed out how math is related to finance and business. There are numerous links between these two science disciplines. At the very end we gave a brief overview why every business needs financial mathematicians in their team. So if you don’t like to spell for good grades and write essays, you should definitely, consider the financial math career.

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