A Brief Note on Financial Theory

Catherine Rivera^*
*Correspondence: Dr. Catherine Rivera, Department of Management, University of South Wales, Cardiff, United Kingdom, Tel: 920154957, Email:

Description

Management, (financial) economics, accounting, and applied mathematics are all fields that study and develop financial theory. Finance, in general, is concerned with the investment and deployment of assets and liabilities over “space and time” that is, it is concerned with performing valuation and asset allocation today, based on the risk and uncertainty of future outcomes while appropriately incorporating the time value of money. The risk appropriate discount rate must be used to determine the present value of these future values, which is a primary topic of finance theory. Since the dispute over whether finance is an art or a science is still on-going, recent efforts have been made to compile a list of unsolved financial problems.

Managerial finance is a discipline of management that deals with the managerial application of finance techniques and theory, with a focus on the financial elements of managerial decisions; the assessment is based on the planning, directing, and controlling managerial viewpoints.

The techniques discussed are primarily drawn from managerial accounting and corporate finance: the former allows management to better understand, and thus act on, financial information relating to profitability and performance; the latter, as previously stated, is concerned with optimizing the overall financial structure, including its impact on working capital. Experimental finance tries to create various market settings and contexts in which research may watch and evaluate agents behaviour, as well as the ensuing characteristics of trading flows, information diffusion and aggregation, price setting mechanisms, and returns processes.

Experimental finance researchers can look into how well existing financial economics theory produces accurate predictions and so proves them, as well as try to identify new principles on which such theory might be extended and applied to future financial decisions. Conducting trading simulations or constructing and researching the behaviour of people in artificial, competitive, market environments are two ways to proceed with research.

Behavioral finance is the study of how investors or managers psychology influences financial decisions and markets, and it's important when making a decision that could have a negative or good impact on one of their sectors.

Behavioral finance has evolved into an important part of finance during the last few decades. Data from settings developed for purposes other than solving a specific research topic is used in financial data analysis. As a result, any interpretation of the data could be questioned because it ignores other variables that have changed. Omitted variables biases, self-selection biases, unobservable independent variables, and unobservable dependent variables are all common data analysis problems.

Academics in this field are usually found at finance departments of business schools, accounting departments, or management science departments. Financial economics is the discipline of economics that analyses how financial factors, such as prices, interest rates, and stock prices, interact with actual economic variables, such as products and services. It focuses on financial market pricing, decision making, and risk management, and provides many of the most widely used financial models. Financial mathematics is a branch of mathematics that deals with financial markets. In practice, the topic is known as quantitative finance and/or mathematical finance, and it essentially consists of the three domains stated.

The topic of retheory is primarily concerned with the modeling of derivatives, while insurance mathematics and quantitative portfolio management are other major subfields.