What is Computational Finance?

Computational finance as a discipline emerged in the 1980s. It is also sometimes referred to as "financial engineering," "financial mathematics," "mathematical finance," or "quantitative finance." It uses the tools of mathematics, statistics, and computing to solve problems in finance. Computational methods and the mathematics behind them have become an indispensable part of the finance industry.

The industry to which computational finance is applied roughly divides into two parts, the sell side and the buy side. The sell side consists of the trading operations of investment banks that create and market a wide variety of financial products, including options, futures, and interest rate caps, floors, and swaps. Sometimes these investment banks are simply matching buy orders with sell orders, but often they are selling something that they have created and then they buy related instruments in order to be able to pay off on what they have sold if it becomes necessary. The buy side, on the other hand, is investing money by buying stocks, bonds, and the complicated products offered by the sell side.

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