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The area of finanical mathematics has expanded remarkably over the last few years. It brings together ideas from statistics, calculus, numerical analysis, operational research and other areas of maths to solve financial problems, usually with a computer program.

What are derivatives?

The area of financial derivatives very often requires complex mathematics to evaluate most problems. Essentially, a derivative is a type of financial contact whose payoff is based on an underlying asset. The underlying asset could be an equity, bond or virtually anything. Take for example weather derivatives whose payoffs can be based on the difference between an agreed temperature and the actual temperature several months in the future. Derivatives can either be bought to insure against a future event or can be bought by speculators, to profit from changes in their value.