{{short description|Overview of finance and finance-related topics}}The following outline is provided as an overview of and topical guide to finance:Finance – addresses the ways in which individuals and organizations raise and allocate monetary resources over time, taking into account the risks entailed in their projects.{{TOC limit|limit=2}}

Overview

The term finance may incorporate any of the following:

The study of money and other assets
The management and control of those assets
Profiling and managing related risks

Fundamental financial concepts

Finance

Debt of developing countries

Financial risk management Uncompensated risk

Risk measure

Coherent risk measure Deviation risk measure Distortion risk measure Spectral risk measure Value at risk* Expected shortfall* Entropic value at risk

History

History of finance
History of banking
History of insurance
Tulip mania (Dutch Republic), 1620s/1630s
South Sea Bubble (UK) & Mississippi Company (France), 1710s; see also Stock market bubble
Vix pervenit 1745, on usury and other dishonest profit
Panic of 1837 (US)
Railway Mania (UK), 1840s
Erie War (US), 1860s
Long Depression, 1873â€“1896 (mainly US and Europe, though other parts of the world were affected)
Post-World War I hyperinflation; see Hyperinflation and Inflation in the Weimar Republic
Wall Street Crash of 1929
Great Depression 1930s
Bretton Woods Accord 1944
1973 oil crisis
1979 energy crisis
Savings and Loan Crisis 1980s
Black Monday 1987
Asian financial crisis 1990s
Dot-com bubble 1995-2001
Stock market downturn of 2002
United States housing bubble
Financial crisis of 2007â€“08, followed by the Great Recession

Finance terms by field

Accounting (financial record keeping)

Banking

See articles listed under: {{slink|Bank|See also}}

Corporate finance

{{See also|Financial management|#Corporate finance theory}}{{Further|Outline of corporate finance}} Current assetsCurrent liabilities

Investment management

Personal finance

529 plan (US college savings)
ABLE account (US plan for benefit of individuals with disabilities)
Asset allocation
- Asset location
Budget
Coverdell Education Savings Account (Coverdell ESAs, formerly known as Education IRAs)
Credit and debt
Debit card
Direct deposit
Employment contract
Financial literacy
Insurance
Predatory lending
Retirement plan
- Australia â€“ Superannuation in Australia
- Canada
  - Registered retirement savings plan
  - Tax-free savings account
- Japan â€“ Nippon individual savings account
- New Zealand â€“ KiwiSaver
- United Kingdom
  - Individual savings account
  - Self-invested personal pension
- United States

Roth IRA Traditional IRA SEP IRA SIMPLE IRA

Pension

Public finance

Risk management

Constraint finance

Insurance

Economics and finance

Finance-related areas of economics

Corporate finance theory

{{further|Financial economics#Corporate finance theory|Financial economics#Certainty}}{{see also|Outline of corporate finance#Theory}}

Fisher separation theorem
Modiglianiâ€“Miller theorem
Theory of the firm
The Theory of Investment Value
Agency theory
Managerial finance
Capital structure
- {{slink|Corporate finance|Capitalization structure}}
- Capital structure substitution theory
- Pecking order theory
- Market timing hypothesis
- Trade-off theory of capital structure
- Merton model
- Tax shield
Dividend policy
- {{slink|Corporate finance|Dividend policy}}
- Walter model
- Gordon model
- Lintner model
- Residuals theory
- Clientele effect
- Dividend puzzle
- {{slink|Treasury stock|Buying back shares}}
- Dividend tax
Capital budgeting (valuation)
- {{slink|Corporate finance|Investment and project valuation}}
- Clean surplus accounting
- Residual income valuation
- Economic value added / Market value added
- T-model
- Adjusted present value
- Uncertainty
Risk management
- {{slink|Corporate finance|Financial risk management}}
- {{slink|Financial risk management|Corporate finance}}
- Hedging irrelevance proposition
- Risk modeling
- Risk-adjusted return on capital

Asset pricing theory

Value (economics)
Financial markets
- Stylized fact
- Regulatory economics
  - {{slink|Macroprudential regulation|Theoretical rationale}}
- Market microstructure
- Market design
- Agent-based model

Heterogeneous agent model{{slink|Agent-based model|In economics and social sciences}}Artificial financial market

Equilibrium price
General equilibrium theory
Arbitrage-free price
Utility
Economic efficiency
State prices
- Arrowâ€“Debreu model
- Stochastic discount factor
- Pricing kernel
- Application:
  - {{slink|Arrowâ€“Debreu model|Economics of uncertainty: insurance and finance}}
  - {{slink|State prices|Application to financial assets}}
Fundamental theorem of asset pricing
Martingale pricing
Quantum finance

Asset pricing models

Equilibrium pricing
- Equities; foreign exchange and commodities

Famaâ€“French three-factor modelCarhart four-factor model

Arbitrage pricing theory

Bonds; other interest rate instruments

Risk neutral pricing
- Equities; foreign exchange and commodities; interest rates
- Bonds; other interest rate instruments

Cheyette

Braceâ€“Gatarekâ€“Musiela

LIBOR market model

Mathematics and finance

Time value of money

Financial mathematics

Mathematical tools

Derivatives pricing

Underlying logic (see also Economics and finance above)
Forward contract
- Forward contract pricing
Futures
- Futures contract pricing
Options (incl. Real options and ESOs)
- Valuation of options
- Blackâ€“Scholes formula
  - Approximations for American options

Barone-Adesi and WhaleyBjerksund and StenslandBlack's approximationOptimal stoppingRollâ€“Geskeâ€“Whaley

Black model
Binomial options model
Finite difference methods for option pricing
(Foreign exchange optionValuation: the Garmanâ€“Kohlhagen model|Garmanâ€“Kohlhagen model)
The Greeks
Lattice model (finance)
Margrabe's formula
Monte Carlo methods for option pricing
- Monte Carlo methods in finance
- Quasi-Monte Carlo methods in finance
- Least Square Monte Carlo for American options
Trinomial tree
Volatility

Constant elasticity of variance model Heston model SABR volatility model

Local volatility

Implied binomial treeImplied trinomial treeEdgeworth binomial treeJohnson binomial tree

Swaps
- Swap valuation
  - {{section link|Asset swap|Computing the asset swap spread}}
  - {{section link|Credit default swap|Pricing and valuation}}
  - {{section link|Currency swap|Valuation and pricing}}
  - {{section link|Interest rate swap|Valuation and pricing}}

Multi-curve framework

{{section link|Variance swap|Pricing and valuation}}

Interest rate derivatives (bond options, swaptions, caps and floors, and others)
- Black model
- Short-rate models (generally applied via lattice based- and specialized simulation-models, although "Black like" formulae exist in some cases.)
- Forward rate / Forward curve -based models (Application as per short-rate models)
  - LIBOR market model (also called: Braceâ€“Gatarekâ€“Musiela Model, BGM)
  - Heathâ€“Jarrowâ€“Morton Model (HJM)
  - Cheyette model
Valuation adjustments
- Credit valuation adjustment
- XVA
Yield curve modelling
- Multi-curve framework
- Bootstrapping (finance)
- {{slink|Yield curve|Construction of the full yield curve from market data}}
- {{slink|Fixed-income attribution |Modeling the yield curve}}
- Nelson-Siegel
- {{slink|Principal component analysis|Quantitative finance}}

Portfolio mathematics

Mathematical techniques below
Quantitative investing below
{{slink|Modern portfolio theory|Mathematical model}}
Portfolio optimization
- Â§ Optimization methods
- Â§ Mathematical tools
Merton's portfolio problem
Kelly criterion
Roy's safety-first criterion
Specific applications:

Financial markets

Market and instruments

Equity market

Equity valuation

Investment theory

Bond market

Money market

Commodity market

Derivatives market

Forward markets and contracts

Forward contract

Futures markets and contracts

Option markets and contracts

Options
- Stock option

At-the-moneyIn-the-moneyOut-of-the-money

Vanilla option Exotic option Binary option European option* Interest rate floor* Interest rate cap Bermudan option American option Quanto option Asian option

Employee stock option

Swap markets and contracts

Swap (finance)

Derivative markets by underlyings

Equity derivatives

Contract for difference (CFD)
Exchange-traded fund (ETF)
- Closed-end fund
- Inverse exchange-traded fund
Equity options
Equity swap
Real estate investment trust (REIT)
Warrants
- Covered warrant

Interest rate derivatives

LIBOR
Forward rate agreement
Interest rate swap
Interest rate cap
Exotic interest rate option
Bond option
Interest rate future
Money market instruments
Range accrual Swaps/Notes/Bonds
In-arrears Swap
Constant maturity swap (CMS) or Constant Treasury Swap (CTS) derivatives (swaps, caps, floors)
Interest rate Swaption
Bermudan swaptions
Cross currency swaptions
Power Reverse Dual Currency note (PRDC or Turbo)
Target redemption note (TARN)
CMS steepener
Snowball
Inverse floater
Strips of Collateralized mortgage obligation
- Interest only (IO)
- Principal only (PO)
Ratchet caps and floors

Credit derivatives

Foreign exchange derivative

Financial regulation

Designations and accreditation

{{further|Professional certification in financial services|Professional certification #Accountancy, auditing and finance|#Education}}

Litigation

Liabilities Subject to Compromise

Fraud

Industry bodies

Regulatory bodies

International

European Union

Regulatory bodies by country

United Kingdom

United States

United States legislation

Actuarial topics

Actuarial topics

Valuation

{{hatnote|This section is corporate-finance-focused: for the valuation of derivatives and interest rate / fixed income instruments see {{slink||Derivatives pricing}}; for the economic theory see {{slink||Asset pricing theory}}.}}

Underlying theory

Value (economics)
Valuation (finance) and specifically Â§ Valuation overview
"The Theory of Investment Value"
{{section link|Financial economics|Corporate finance theory}}
Valuation risk
Real versus nominal value (economics)
Real prices and ideal prices
Fair value
- Fair value accounting
Intrinsic value
Market price
Value in use
Fairness opinion
Asset pricing (see also Asset pricing theory above)
- Equilibrium price
- Arbitrage-free price
  - {{section link|Rational pricing|Arbitrage free pricing}}
  - {{section link|Rational pricing|Risk neutral valuation}}

Context

(Corporate) Bonds
- Bond valuation
- {{section link|Bond (finance)|Bond valuation}}
- {{section link|Corporate bond|Valuation}}
Equity valuation
- Equity valuation above
- Fundamental analysis
- Stock valuation
- Capital Markets
- Business valuation
- {{section link|Equity (finance)|Valuation}}
- {{section link|Intrinsic value (finance)|Equity}}
- Capital budgeting and {{section link|Corporate finance|Investment and project valuation}}
- The Theory of Investment Value
Real estate valuation
- Real estate appraisal
- Real estate economics

Considerations

Discounted cash flow valuation

Bond valuation
- Modeling
  - {{section link|Present value|PV of a bond}}
  - {{section link|Bond valuation|Present value approach}}
  - {{section link|Bond valuation|Arbitrage-free pricing approach}}
  - embedded options:

Pull to par{{section link|Lattice model (finance)|Hybrid securities}}

Results
- Clean price
- Dirty price
- Yield to maturity
- Coupon yield
- Current yield
- Duration
- Convexity
- embedded options:

Option-adjusted spreadeffective durationeffective convexity

Cash flows

Real estate valuation
- {{section link|Intrinsic value (finance)|Real estate}}
- Income approach
  - Net Operating Income
  - {{section link|Real estate appraisal|The income approach}}
  - German income approach
Equity valuation

Free cash flow to firm Free cash flow to equity

Dividends
{{slink|Valuation using discounted cash flows|Determine cash flow for each forecast period}}

Relative valuation

Bonds
- {{section link|Bond valuation|Relative price approach}}
- Yield spread
- Credit spread (bond)
Real estate
- Capitalization rate
- Gross rent multiplier
- Sales comparison approach
  - {{section link|Real estate appraisal|The sales comparison approach}}
- Cash on cash return
Equity

Contingent claim valuation

Valuation techniques
- general
  - Valuation of options
  - {{section link|Option (finance)|Valuation}}
  - Derivatives pricing above
- as typically employed
  - Real options valuation
  - {{section link|Rational pricing|The replicating portfolio}}
  - {{section link|Financial economics|Corporate finance theory}}
  - {{section link|Lattice model (finance)|Hybrid securities}}
  - Monte Carlo methods in finance
Applications
- Corporate investments and projects
  - Real options
  - {{section link|Corporate finance|Valuing flexibility}}
  - Contingent value rights
  - {{section link|Business valuation|Option pricing approaches}}
  - structured finance investments (funding dependent)
  - special purpose entities (funding dependent)
- Balance sheet assets and liabilities
  - warrants and other convertible securities
  - securities with embedded options such as callable bonds
  - employee stock options

Other approaches

"Fundamentals"-based (relying on accounting information)

Financial modeling

Cash flow
- Cash flow forecasting
- Cash flow statement
- Operating cash flow
- EBIDTA
  - {{section link|Depreciation|Effect on cash}}
- NOPAT
- Free cash flow
  - Free cash flow to firm
  - Free cash flow to equity
- Dividends
- Cash is king
- Mid-year adjustment
- Owner earnings
Required return (i.e. discount rate)
- {{slink|Valuation using discounted cash flows|Determine discount factor / rate}}
- Cost of capital
- Weighted average cost of capital
- Cost of equity
- Cost of debt
- Capital asset pricing model
  - {{section link|Beta (finance)|Empirical estimation}}
  - Hamada's equation
  - Pure play method
- Arbitrage pricing theory
- {{section link|Business valuation|Build-up method}}
  - Total Beta
- T-model
  - cash-flow T-model
Terminal value
- {{slink|Valuation using discounted cash flows|Determine the continuing value}}
- Forecast period (finance)
- long term growth rate
  - {{section link|Sustainable growth rate|From a financial perspective}}
  - {{section link|Stock valuation|Growth rate}}
Forecasted financial statements
- Financial forecast
- {{section link|Financial modeling|Accounting}}
- {{section link|Pro forma|Financial statements}}
- Revenue
  - Revenue model
  - {{section link|Revenue|Financial statement analysis}}
  - {{section link|Revenue management|Forecasting}}
  - Net sales
- Costs
  - Profit margin

Gross marginNet marginCost of goods sold

Operating expenses

Operating ratio

Capital

Shareholders' equityBook valueRetained earnings

Financial capital

Long term asset / Fixed asset*Fixed-asset turnoverLong-term liabilities*Debt-to-equity ratio*Debt-to-capital ratio

Working capital

Current assetCurrent liabilityInventory turnover / Days in inventoryCost of goods soldDebtor & Creditor daysDays sales outstanding Days payable outstanding

Portfolio theory

Performance measurement

Mathematical techniques

{{slink|Modern portfolio theory|Mathematical model}}
Quadratic programming
- Critical line method
Nonlinear programming
Mixed integer programming
Stochastic programming (Â§ Multistage portfolio optimization)
Copula (probability theory) (Â§ Quantitative finance)
Principal component analysis (Â§ Quantitative finance)
Deterministic global optimization
Extended Mathematical Programming (Â§ EMP for stochastic programming)
Genetic algorithm ({{section link|List of genetic algorithm applications|Finance and Economics}})
Artificial intelligence:
- {{slink|Applications of artificial intelligenceTrading and investment}}
- Machine learning (Â§ Applications)
- Artificial neural network (Â§ Finance)

Quantitative investing

Quantitative investing
Quantitative fund
{{section link|Quantitative_analysis_(finance)|Quantitative_investment_management}}
{{slink|Quantitative analysis (finance)|Algorithmic trading quantitative analyst}}
{{slink|Applications of artificial intelligenceTrading and investment}}
Trading:
- Automated trading
- High-frequency trading
- Algorithmic trading
- Program trading
- Systematic trading
  - {{section link|Technical_analysis|Systematic_trading}}
- Trading strategy
- Mirror trading
- Copy trading
- Social trading
- VWAP
- TWAP
- Electronic trading platform
- Statistical arbitrage
Portfolio optimization:
- {{section link|Portfolio optimization |Optimization methods}}
- {{section link|Portfolio optimization |Mathematical tools}}
- Blackâ€“Litterman model
- Universal portfolio algorithm
- Markowitz model
- Treynorâ€“Black model
- other models
- Factor investing
- Alpha generation platform
- Kelly criterion
- Roy's safety-first criterion
Risks:
Discussion:
- {{section link|Automated_trading_system|Market_disruption_and_manipulation}}
- {{section link|High-frequency_trading|Risks_and_controversy}}
- {{section link|Algorithmic_trading|Issues_and_developments}}
- {{section link|Positive_feedback|Systemic_risk}}
- 2010 flash crash
- {{section link|Black_Monday_(1987)|Causes}}
- {{section link|Statistical arbitrage |StatArb and systemic risk: events of summer 2007}}
Leading companies (see {{slink|Quantitative fundList of notable quantitative funds}}):

Financial software tools

Financial modeling applications

Corporate Finance

Business valuation / stock valuation - especially via discounted cash flow, but including other valuation approaches
Scenario planning and management decision making ("what is"; "what if"; "what has to be done"BOOK, Joel G. Siegel, Jae K. Shim, Stephen Hartman, Schaum's quick guide to business formulas: 201 decision-making tools for business, finance, and accounting students,weblink 12 November 2011, 1 November 1997, McGraw-Hill Professional, 978-0-07-058031-2, Â§39 "Corporate Planning Models". See also, Â§294 "Simulation Model".)
Capital budgeting, including cost of capital (i.e. WACC) calculations
Financial statement analysis / ratio analysis (including of operating- and finance leases, and R&D)
Revenue related: forecasting, analysis
Project finance modeling
Cash flow forecasting
Credit decisioning: Credit analysis, Consumer credit risk; impairment- and provision-modeling
Working capital- and treasury management; asset and liability management
Management accounting: Activity-based costing, Profitability analysis, Cost analysis, Whole-life cost

Quantitative finance

Option pricing and calculation of their "Greeks"
Other derivatives, especially interest rate derivatives, credit derivatives and exotic derivatives
Modeling the term structure of interest rates (bootstrapping / multi-curves, short-rate models, HJM framework) and credit spreads
Credit valuation adjustment, CVA, as well as the various XVA
Credit risk, counterparty credit risk, and regulatory capital: EAD, PD, LGD, PFE
Structured product design and manufacture
Portfolio optimizationSee for example: JOURNAL, Low, R.K.Y., Faff, R., Aas, K., Enhancing meanâ€“variance portfolio selection by modeling distributional asymmetries, Journal of Economics and Business, 85, 49â€“72, 2016, 10.1016/j.jeconbus.2016.01.003,weblink ; JOURNAL, Low, R.K.Y., Alcock, J., Faff, R., Brailsford, T., Canonical vine copulas in the context of modern portfolio management: Are they worth it?, Journal of Banking & Finance, 2013, 37, 8, 3085â€“3099, 10.1016/j.jbankfin.2013.02.036, 154138333,weblink and Quantitative investing more generally; see further re optimization methods employed.
Financial risk modeling: value at risk (parametric- and / or historical, CVaR, EVT), stress testing, "sensitivities" analysis

Financial institutions

Education

For the typical finance career path and corresponding education requirements see:
- Financial analyst generally, and esp. Â§ Qualification, discussing various investment, banking, and corporate roles (i.e. financial management, corporate finance, investment banking, securities analysis & valuation, portfolio & investment management, credit analysis, working capital & treasury management; see {{section link|Financial modeling |Accounting}})
- Quantitative analyst, {{section link|Quantitative analysis (finance) |Education}} and {{section link|Financial engineering|Education}}, specifically re roles in quantitative finance (i.e. derivative pricing & hedging, interest rate modeling, financial risk management, financial engineering, computational finance; also, the mathematically intensive variant on the banking roles; see {{section link|Financial modeling |Quantitative finance}})
Business education lists undergraduate degrees in business, commerce, accounting and economics; "finance" may be taken as a major in most of these, whereas "quantitative finance" is almost invariably postgraduate, following a math-focused Bachelors; the most common degrees for (entry level) investment, banking, and corporate roles are:
- Bachelor of Business Administration (BBA)
- Bachelor of Commerce (BCom)
- Bachelor of Accountancy (B.Acc)
- Bachelor of Economics (B.Econ)
- Bachelor of Finance - the undergraduate version of the MSF below
- The tagged BS / BA "in Finance", or less common, "in Investment Management" or "in Personal Finance"
At the postgraduate level, the MBA, MCom and MSM (and recently the Master of Applied Economics) similarly offer training in finance generally; at this level there are also the following specifically focused master's degrees, with MSF the broadest - see {{section link|Master of Finance|Comparison with other qualifications}} for their focus and inter-relation:
- Master of Applied Finance (M.App.Fin)
- Master of Commerce in Finance (MCom)
- Master of Computational Finance
- Master's in Corporate Finance
- Master of Finance (M.Fin, MIF)
- Master's in Financial Analysis
- Master of Financial Economics
- Master of Financial Engineering (MFE)
- Master of Financial Planning
- Master's in Financial Management
- Master of Financial Mathematics
- Master's in Financial Risk Management
- Master's in Investment Management
- Master of Mathematical Finance
- Master of Quantitative Finance (MQF)
- Master of Science in Finance (MSF, MSc Finance)
- MS in Fintech
Doctoral-training in finance is usually a requirement for academia, but not relevant to industry
- quants often enter the profession with PhDs in disciplines such as physics, mathematics, engineering, and computer science, and learn finance "on the jobâ€
- as an academic field, finance theory is studied and developed within the disciplines of management, (financial) economics, accountancy, and applied / financial mathematics.
For specialized roles, there are various Professional Certifications in financial services (see Designations and accreditation above); the best recognized are arguably:
- Association of Corporate Treasurers (MCT / FCT)
- Certificate in Quantitative Finance (CQF)
- Certified Financial Planner (CFP)
- Certified International Investment Analyst (CIIA)
- Certified Treasury Professional (CTP)
- Chartered Alternative Investment Analyst (CAIA)
- Chartered Financial Analyst (CFA)
- Chartered Wealth Manager (CWM)
- CISI Diploma in Capital Markets (MCSI)
- Financial Risk Manager (FRM)
- Professional Risk Manager (PRM)
Various organizations offer executive education, CPD, or other focused training programs, including:
See also qualifications in related fields:
- {{section link|Accounting |Education, training and qualifications}}
- Actuarial credentialing and exams
- Business education
- {{slink|Credit analyst|Education}}
- Economics education
- {{section link|Management |Training and education}}
- {{slink|Chief financial officer|Qualifications}}

Related lists

References

External links

Prof. Aswath Damodaran - financial theory, with a focus in Corporate Finance, Valuation and Investments. Updated Data, Excel Spreadsheets.
Web Sites for Discerning Finance Students (Prof. John M. Wachowicz) -Links to finance web sites, grouped by topic
studyfinance.com - introductory finance web site at the University of Arizona
SECLaw.com - law of the financial markets

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Outline of finance

Overview

Fundamental financial concepts

History

Finance terms by field

Accounting (financial record keeping)

Banking

Corporate finance

Investment management

Personal finance

Public finance

Risk management

Constraint finance

Insurance

Economics and finance

Finance-related areas of economics

Corporate finance theory

Asset pricing theory

Asset pricing models

Mathematics and finance

Time value of money

Financial mathematics

Mathematical tools

Derivatives pricing

Portfolio mathematics

Financial markets

Market and instruments

Equity market

Equity valuation

Investment theory

Bond market

Money market

Commodity market

Derivatives market

Forward markets and contracts

Futures markets and contracts

Option markets and contracts

Swap markets and contracts

Derivative markets by underlyings

Equity derivatives

Interest rate derivatives

Credit derivatives

Foreign exchange derivative

Financial regulation

Designations and accreditation

Litigation

Fraud

Industry bodies

Regulatory bodies

International

European Union

Regulatory bodies by country

United Kingdom

United States

United States legislation

Actuarial topics

Valuation

Underlying theory

Context

Considerations

Discounted cash flow valuation

Relative valuation

Contingent claim valuation

Other approaches

Financial modeling

Portfolio theory

General concepts

Modern portfolio theory

Post-modern portfolio theory

Performance measurement

Mathematical techniques

Quantitative investing

Financial software tools

Financial modeling applications

Corporate Finance

Quantitative finance

Financial institutions

Education

See also