Multiv. Calculus and Linear Algebra?

Dude these are basic math courses that you should have anyhow if you want to do anything serious with your life down the line I'm surprised its not part of your core. As a trader you may consider doing a quant program down the line, and these are prereqs to get into those programs.

You don't need multivariable or linear algebra to derive Black-Scholes or understand / use the "greeks" (outside of partial derivatives). Could someone be more specific regarding the uses?

How do you derive Black-Scholes then?

BTW if he is a finance major, I don't know of a single program that would require these so I'm not surprised.

Derived B.S. using three methods this year and was able to do this without taking multivariable calc. or linear algebra.

And yes, I am a finance major. I'm absolutely not trying to be a dick. Glowinthedark's point about graduate school is well taken and gives me pause for thought, but I am more interested in direct application.

Yeah it wasn't an insult, but deriving the PDE requires mathematics much beyond multivariable, which is why I was asking.

The class in which I derived B.S. definitely included a crash-course in stochastic calculus, brownian motion, and ito calculus.

if you can add subtract multiply divide youre good to go

Math Geeks!

Edit: Rock on Bateman!

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

I suppose what I am getting at is that: a) so far I have received an intuitive understanding of derivatives without a formal advanced math education and b) should I spend the time on a formal math educ.? i.e., have I missed anything that I absolutely need to go back and learn?

Thanks Revsly!

I am of a similar mind with iambateman but I realize I don't know jack-shit and appreciate advice.

I also realize I can never go back to undergrad., and want to maximize the learning experience.

From what I've heard, for the most part it would be unnecessary, there are plenty of derivatives traders who do not have advanced mathematics courses. If you are thinking you might like to do some quantitative finance at some point, however, you should definitely take Multi and Linear.

revs is correct, you only need to know that shit if you want to be a quant

Can you make markets in most products without that math, then? When you say quant, do you mean structuring highly personalized OTC shit, prop strategies, etc?

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nicely put PnL. I get very annoyed at the repetitive posts on wso that imply that you need to have upper level math to be a successful trader. The single most important trait of a successful trader is discipline.

I do not care where you went to college, how smart you are, or how much upper level math you know-- if you have mental blocks such as taking losses personally you will NEVER be a good trader. Having proper discipline means more than anything you will ever learn in school.

Also going to a target school and getting good grades and being a hard worker does not show you have discipline. The type discipline I am talking about is purely mental. Once you have your own pnl you will understand exactly what I mean.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

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yes, i know that..but what i am saying is that there isnt much need to be able to derive it at least in the vanilla options world or other types of non exotic deriv products. that is my point. does this knowledge help someone? sure. does it severely hinder someone's ability to make markets in options? not really

if you could learn stochastic calculus, brownian motion, and ito calculus in a "crash course", taking multivariate and linear algebra should be a walk in the park for you.

and no, you probably don't need to have math to be a derivatives trader. but yeah, having it can definitely be useful, and there are definitely many places that will value the traders (and not just the quants) having these skills (think places like citadel which runs a lot of options trading, quantier derivatives and prop desks, etc).

i'm not trying to start a flame war or suggest that it's the only way to trade (not having traded, i have no idea), but i know for a fact that there are some very good places that like the skillset...so if you can do it, why not?

A couple things:

PnL: You can't solve N(d1) "easily by hand" (unless you have a normal table) which makes me think you don't know what you're talking about. The integral of e(-x^2) as it appears in the CDF for a normal distribution requires you to expand the above term in an infinte series and this is something most people don't know off the top of their heads.

Also, the BS formula was derived using a GWP (generalized weiner process) to model stock prices, then Ito's Lemma to get the process for the derivative, and an arbitrage argument gives you the PDE since the portfolio of the option and -(df/ds) shares is risk-free. To be able to actually solve the BS equation this way you need to know multi-variable calc and PDEs. Period. However, if any of you have actually read the actual article published by Black and Scholes in 1973 (Journal of Political Economy) you would see you can also solve it using CAPM - which doesn't require the above.

Anyways, _HazMat7, my advice would be that you should register to take these both multi-variable and linear algebra. Only because so many other people interested in finance don't and it will allow you to stand out. Assuming you do well in the courses.

As far as application, the linear algebra will be more useful. If you're dealing with a large data set, with multi-variables, and you want to analyse/maniuplate it (i.e. multiple regression, etc) using MATLAB, SAS, or other programs, it's helpful to understand what the software is actually doing.

RVM: yes, obviously i am assuming you have a norm table. thank you for suggesting that i have no idea what i am talking about. at this point, i sure would hope that i do... my point was that to trade derivs you dont NEED the above mentioned curriculum. would it help? yes. did i learn a lot from some of the math classes that i took? yes. will you fail as a trader if you havent taken these courses? no. i never said that this kid shouldnt take the courses..he should. but if he doesnt then i think he will still be ok.

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Sorry just a correction - the CAPM method avoids Ito's Lemma and GWP - you still end up with the PDE.

PnL - man don't get so defensive! I said your comment makes me THINK you don't know what you are talking about. Thanks for clarifying that you at least seem to. Also, I never said you suggested he'd fail as a trader if he didn't take these courses.

Anyways, best of luck _HazMat7 - it's good to be thinking this far in advance.

maybe its just me, but i majored in finance so i would never have to kill myself on these type of math classes, but to each his own i suppose.

It's not always relevant, but its good for screening. Additionally, you can take on a lot of projects that aren't directly assigned to you, or at least understand products better.

Example - if you trade structured products, you may not need to know all the math that goes in to them, but knowing it can only make you better. Linear algebra has a direct connection because structurers use a shit-load of correlation matrices.

glowinthedark and haz_mat are idiots - these aren't 'basic' math courses because they're not generally required for a finance major. and not needing multivariable calc to get black scholes?

I always recommend a math minor to anyone...english majors to aspiring traders.

It helps in understanding some of the literature, but in becoming successful trader, not necessarily.

Either way, I think that everyone should be expected to know math at that level.

I made more in a half hour today than you will make this week. Kthx you lose I win.

Edit: Wow what better way for my 1000th post than to spend it bashing the single biggest faggot on the board. Wouldnt have had it any other way. Was intending on using my 1000th post as a tribute to WSO. Nice job Ideating you fucking toolbox.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

tmi

They didn't hire me for my math. But I am not about doing the minimum. If more math would increase my performance, I am willing to consider it.

I've decided to take Multiv. Calc., Linear Algebra, and a MatLab class before I graduate. After thinking it over and taking everybody's helpful insight into account, I realized I can't be "quant" half-way. You either are "quant" or you're not. So I am going to take the aforementioned classes simply for screening and basic-use purposes.

They're only three classes, so fuck it.

And there is always Sales!

You seem to be using the word "quant" quite losely. That term is reserved for the PhD OGs.

... you are not even worth a comment back.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

You guys realize that there are little computer screens that do all the hard math for you, right? You just need to understand what drives a security and how people react to news. Quants are the ones with the high level math who make the computer screen thingies that you use, not you yourself as a trader.

IMO learning all derivatives theory and application is worlds easier after a hefty dose of calculus (including multi-variable) and statistics--the latter more important in my mind than Linear Algebra. I by no means think it's necessary, but definitely helps quite a bit. So does knowing some coding / I think your choice to learn some matlab will turn out to be a good one although it might feel like pulling teeth for a little while (sure did for me when I took it in my senior year, sitting next to a bunch of freshmen engineers). Knowledge is power and you can't get enough of it really...I wish I would've taken more programming & numerical analysis and all I want to do is trade.

i would think multi var calculus and linear algebra would be something worth taking for basic knowledge as a human ... but if you already understand PDEs definitely a waste of time. matlab class good idea. statistics very good idea. linear algebra maybe useful.

You should learn multivariate calculus, linear algebra and some statistics. It's all very interesting. I don't think you really need it but in my opinion everyone graduating from a "finance" program should have learned those.

Also, are you paying for the classes? What a rip-off if you are.