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{{Short description|Academic discipline studying businesses and investments}}
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{{Redirect|Financial|the Georgian newspaper|The Financial{{!}}''The Financial''}}
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'''Finance''' refers to monetary resources and to the study and [[Academic discipline|discipline]] of [[money]], [[currency]], [[asset]]s and [[Liability (financial accounting)|liabilities]].{{efn|
The following are definitions of ''finance'' as crafted by the authors indicated:
* [https://faculty.chicagobooth.edu/eugene.fama/research/Theory%20of%20Finance/The%20Theory%20of%20Finance%20Preface%20and%20Table%20of%20Contents.pdf Fama and Miller]: "The theory of finance is concerned with how individuals and firms allocate resources through time. In particular, it seeks to explain how solutions to the problems faced in allocating resources through time are facilitated by the existence of capital markets (which provide a means for individual economic agents to exchange resources to be available of different points In time) and of firms (which, by their production-investment decisions, provide a means for individuals to transform current resources physically into resources to be available in the future)." 
* [https://afajof.org/wp-content/uploads/files/historical-texts/guthmann-dougall-1940-ocr.pdf Guthmann and Dougall]: "Finance is concerned with the raising and administering of funds and with the relationships between private profit-seeking enterprise on the one hand and the groups which supply the funds on the other. These groups, which include investors and speculators – that is, capitalists or property owners – as well as those who advance short-term capital, place their money in the field of commerce and industry and in return expect a stream of income."
* [https://www.wiley.com/en-in/Finance:+Capital+Markets,+Financial+Management,+and+Investment+Management-p-9780470407356 Drake and Fabozzi]: "Finance is the application of economic principles to decision-making that involves the allocation of money under conditions of uncertainty."
* [https://openlibrary.org/authors/OL1637242A/Frank_Walter_Paish F.W. Paish]: "Finance may be defined as the position of money at the time it is wanted".
* [https://openlibrary.org/authors/OL835181A/John_J._Hampton John J. Hampton]: "The term finance can be defined as the management of the flows of money through an organisation, whether it will be a corporation, school, or bank or government agency".
* [https://www.worldcat.org/oclc/976723372 Howard and Upton]: "Finance may be defined as that administrative area or set of administrative functions in an organisation which relates with the arrangement of each debt and credit so that the organisation may have the means to carry out the objectives as satisfactorily as possible".
*[https://education.wbstraining.com/pluginfile.php/2808/mod_resource/content/1/PabloFernandez_Finance%20and%20Financial%20Economics.pdf Pablo Fernandez]: "Finance is a profession that requires interdisciplinary training and can help the managers of companies make sound decisions about financing, investment, continuity and other issues that affect the inflows and outflows of money, and the risk of the company. It also helps people and institutions invest and plan money-related issues wisely."
}} As a subject of study, it is related to but distinct from [[economics]], which is the study of the [[Production (economics)|production]], [[Distribution (economics)|distribution]], and [[Consumption (economics)|consumption]] of [[goods and services]].{{efn|The discipline of [[financial economics]] bridges the two fields.}} Based on the scope of financial activities in [[financial system]]s, the discipline can be divided into [[Personal finance|personal]], [[Corporate finance|corporate]], and [[public finance]].

In these financial systems, assets are bought, sold, or traded as [[financial instrument]]s, such as [[Currency|currencies]], [[loan]]s, [[Bond (finance)|bonds]], [[Share (finance)|shares]], [[stock]]s, [[Option (finance)|options]], [[Futures contract|futures]], etc. Assets can also be [[bank]]ed, [[Investment|invested]], and [[Insurance|insured]] to maximize value and minimize loss. In practice, [[Financial risk|risks]] are always present in any financial action and entities.

Due to its wide scope, a broad range of subfields exists within finance. [[Asset management|Asset-]], [[Money management|money-]], [[Financial risk management|risk-]] and [[investment management]] aim to maximize value and minimize [[Volatility (finance)|volatility]]. [[Financial analysis]] assesses the viability, stability, and profitability of an action or entity. Some fields are multidisciplinary, such as [[mathematical finance]], [[financial law]], [[financial economics]], [[financial engineering]] and [[financial technology]]. These fields are the foundation of [[business]] and [[accounting]]. In some cases, [[financial economics|theories in finance]] can be tested using the [[scientific method]], covered by [[experimental finance]].

The early history of finance parallels the early [[history of money]], which is [[Prehistory|prehistoric]]. Ancient and medieval civilizations incorporated basic functions of finance, such as banking, trading and accounting, into their economies. In the late 19th century, the [[global financial system]] was formed.

In the middle of the 20th century, finance emerged as a distinct academic discipline,{{efn|The first academic journal, ''[[The Journal of Finance]]'', began publication in 1946.}} separate from economics.<ref>{{Cite web | last=Hayes | first=Adam | title=Finance | url=https://www.investopedia.com/terms/f/finance.asp | website=Investopedia | access-date=2022-08-03 | archive-date=2020-12-19 | archive-url=https://web.archive.org/web/20201219025012/https://www.investopedia.com/terms/f/finance.asp | url-status=live }}</ref> The earliest doctoral programs in finance were established in the 1960s and 1970s.<ref>{{Cite journal |last1=Gippel |first1=Jennifer K |date=2012-11-07 |title=A revolution in finance? |journal=[[Australian Journal of Management]] |language=en |volume=38 |issue=1 |pages=125–146 |doi=10.1177/0312896212461034 |s2cid=154759424 |issn=0312-8962 |doi-access=free }}</ref> Today, finance is also [[Outline of finance#Education|widely studied]] through [[career]]-focused undergraduate and [[Master of Finance|master's level]] programs.<ref>[https://www.ucas.com/explore/subjects/finance "Finance"] {{Webarchive|url=https://web.archive.org/web/20230131091501/https://www.ucas.com/explore/subjects/finance |date=2023-01-31 }}, [[UCAS]] Subject Guide.</ref><ref>Anthony P. Carnevale, Ban Cheah, Andrew R. Hanson (2015). [https://1gyhoq479ufd3yna29x7ubjn-wpengine.netdna-ssl.com/wp-content/uploads/The-Economic-Value-of-College-Majors-Full-Report-web-FINAL.pdf "The Economic Value of College Majors"] {{Webarchive|url=https://web.archive.org/web/20221108144220/https://1gyhoq479ufd3yna29x7ubjn-wpengine.netdna-ssl.com/wp-content/uploads/The-Economic-Value-of-College-Majors-Full-Report-web-FINAL.pdf |date=2022-11-08 }}. [[Georgetown University]].</ref>

==The financial system==

[[File:1925.B&O.Railroad.Stock.Louis.Brandeis.jpg|thumb|right|[[Bond (finance)|Bond]] issued by The Baltimore and Ohio Railroad. Bonds are a form of borrowing used by corporations to finance their operations.]]
[[File:Radium Hill share certificate.jpg|thumb|right|[[Share certificate]] dated 1913 issued by the Radium Hill Company]]

[[File:NY stock exchange traders floor LC-U9-10548-6.jpg|right|thumb|NYSE's stock exchange [[trader (finance)|traders]] floor c 1960, before the introduction of electronic readouts and computer screens]]
[[File:Chicago bot.jpg|thumb|right|250px|[[Chicago Board of Trade]] [[Maize#Commodity|Corn Futures]] market, 1993]]
[[File:A1 Houston Office Oil Traders on Monday.jpg|thumb|right|[[Price of oil#Speculative trading and crude oil futures|Oil traders]], Houston, 2009]]
{{Main|Financial system}}
{{See also|Financial services|financial market|Circular flow of income}}
As outlined, the financial system consists of the flows of capital that take place between individuals and households ([[personal finance]]), governments ([[public finance]]), and businesses ([[corporate finance]]). "Finance" thus studies the process of channeling money from savers and investors to entities that need it.{{efn|Finance thus allows production and consumption in society to operate independently from each other. Without the use of financial allocation, production would have to happen at the same time and space as consumption. Through finance, distances in [[spacetime|timespace]] between production and consumption are then posible.<ref>{{cite journal |last1=Allen |first1=Michael |last2=Price |first2=John |title=Monetized time-space: derivatives – money's 'new imaginary'? |journal=Economy and Society |date=2000 |volume=29 |issue=2 |pages=264–284 |doi=10.1080/030851400360497 |s2cid=145739812 |url=https://www.tandfonline.com/doi/abs/10.1080/030851400360497 |access-date=3 June 2022 |archive-date=20 March 2022 |archive-url=https://web.archive.org/web/20220320050529/https://www.tandfonline.com/doi/abs/10.1080/030851400360497 |url-status=live }}</ref>}}Savers and investors have money available which could earn interest or dividends if put to productive use. Individuals, companies and governments must obtain money from some external source, such as loans or credit, when they lack sufficient funds to run their operations.

In general, an entity whose income exceeds its [[Expense|expenditure]] can lend or invest the excess, intending to earn a fair return. Correspondingly, an entity where income is less than expenditure can raise capital usually in one of two ways: (i) by borrowing in the form of a loan (private individuals), or by selling [[Bond (finance)|government or corporate bonds]]; (ii) by a corporation selling [[Equity (finance)|equity]], also called stock or shares (which may take various forms: [[preferred stock]] or [[common stock]]). The owners of both bonds and stock may be ''[[institutional investor]]s''—financial institutions such as investment banks and [[pension funds]]—or private individuals, called ''[[private investors]]'' or ''retail investors.'' (See [[Financial market participants]].)

The [[lender|lending]] is often indirect, through a [[financial intermediary]] such as a [[bank]], or via the purchase of notes or [[Bond (finance)|bonds]] ([[corporate bonds]], [[government bond]]s, or mutual bonds) in the [[bond market]]. The lender receives interest, the [[Debtor|borrower]] pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan.<ref>See e.g., {{Cite web|title=Financial system|url=https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-brief/|last=Bank of Finland|author-link=Bank of Finland|access-date=2020-05-18|archive-date=2020-06-02|archive-url=https://web.archive.org/web/20200602105013/https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-brief/|url-status=live}}</ref><ref>{{Cite web|title=Introducing the Financial System {{!}} Boundless Economics|url=https://courses.lumenlearning.com/boundless-economics/chapter/introducing-the-financial-system/|website=courses.lumenlearning.com|access-date=2020-05-18|archive-date=2020-07-28|archive-url=https://web.archive.org/web/20200728111502/https://courses.lumenlearning.com/boundless-economics/chapter/introducing-the-financial-system/|url-status=live}}</ref><ref>{{Cite web|title=What is the financial system?|url=https://www.ecnmy.org/learn/your-money/banking-and-finance/what-is-the-financial-system/|website=Economy|access-date=2020-05-18|archive-date=2020-07-31|archive-url=https://web.archive.org/web/20200731162128/https://www.ecnmy.org/learn/your-money/banking-and-finance/what-is-the-financial-system/|url-status=live}}</ref>
A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.

Investing typically entails the purchase of [[equity (finance)|stock]], either individual securities or via a [[mutual fund]], for example. Stocks are usually sold by corporations to investors so as to raise required capital in the form of "[[equity financing]]", as distinct from the ''debt financing'' described above. The financial intermediaries here are the [[investment bank]]s. The investment banks [[Investment banking#Corporate finance|find the initial investors]] and facilitate the listing of the securities, typically shares and bonds. Additionally, they facilitate the [[securities exchange]]s, which allow their trade thereafter, as well as the various service providers which manage the performance or risk of these investments. These latter include [[mutual funds]], [[pension funds]], [[Wealth management|wealth managers]], and [[stock brokers]], typically servicing [[Security (finance)#Type of holder|retail investors]] (private individuals).

Inter-institutional trade and investment, and [[investment management|fund-management at this scale]], is referred to as "wholesale finance". 
Institutions here [[Structured finance|extend the products offered]], with related trading, to include bespoke [[Option (finance)|options]], [[Swap (finance)|swaps]], and [[structured products]], as well as [[Special-purpose entity#Types|specialized financing]]; this "[[financial engineering]]" is [[Outline of finance#Mathematical tools|inherently mathematical]], and these institutions are then the major employers of [[quantitative analyst|"quants"]] (see [[#Financial_mathematics|below]]). In these institutions, [[Financial risk management|risk management]], [[Capital requirement|regulatory capital]], and [[Regulatory compliance|compliance]] play major roles.
<!-- === Six pillars of Finance ===
* [[Asset management]]
* [[Securities research]] ([[Equity (finance)]] & [[Debt]])
* [[Investment banking]]
* [[Sales and trading]]
* [[Private equity]]
* [[Venture capital]] -->

==Areas of finance==
As outlined, finance comprises, broadly, the three areas of personal finance, corporate finance, and public finance.These, in turn, overlap and employ various activities and sub-disciplines—chiefly [[investment]]s, risk management, and [[quantitative finance]].

===Personal finance===
[[File:Wealth Management Consultation.jpg|thumb|[[Wealth management]] consultation—here, the [[financial planner|financial advisor]] counsels the client on an appropriate [[investment strategy]].]]
{{Main|Personal finance}}
{{further|Financial planner|Investment advisory}}
Personal finance refers to the practice of budgeting to ensure enough funds are available to meet basic needs, while ensuring there is only a reasonable level of risk to lose said capital. Personal finance may involve paying for education, financing [[durable good]]s such as [[real estate]] and cars, buying [[insurance]], investing, and saving for [[retirement]].<ref>{{Cite book|url=https://books.google.com/books?id=DF7FCQAAQBAJ|title=Finance (Speedy Study Guides)|last=Publishing|first=Speedy|date=2015-05-25|publisher=Speedy Publishing LLC|isbn=978-1-68185-667-4|language=en}}</ref> Personal finance may also involve paying for a loan or other debt obligations. The main areas of personal finance are considered to be income, spending, saving, investing, and protection. The following steps, as outlined by the Financial Planning Standards Board,<ref>{{Citation|chapter=Financial Planning Standards Board|date=2019|pages=709–735|publisher=John Wiley & Sons, Ltd|language=en|doi=10.1002/9781119642497.ch80|isbn=9781119642497|title=Financial Planning Competency Handbook|s2cid=242623141|editor1-last=Snowdon|editor1-first=Michael}}</ref> suggest that an individual will understand a potentially secure personal finance plan after:
* Purchasing insurance to ensure protection against unforeseen personal events;
* Understanding the effects of tax policies, subsidies, or penalties on the management of personal finances;
* Understanding the effects of credit on individual financial standing;
* Developing a savings plan or financing for large purchases (auto, education, home);
* Planning a secure financial future in an environment of economic instability;
* Pursuing a checking or a savings account;
* Preparing for retirement or other long term expenses.<ref>{{Cite web|url=https://www.investopedia.com/terms/p/personalfinance.asp|title=Personal Finance|last=Kenton|first=Will|website=Investopedia|language=en|access-date=2020-01-20|archive-date=2000-08-18|archive-url=https://web.archive.org/web/20000818133538/https://www.investopedia.com/terms/p/personalfinance.asp|url-status=live}}</ref>

===Corporate finance===
{{Main|Corporate finance|Financial management}}
{{further|Strategic financial management}}
Corporate finance deals with the actions that managers take to increase the value of the firm to the shareholders, the sources of funding and the [[capital structure]] of corporations, and the tools and analysis used to allocate financial resources. While corporate finance is in principle different from [[managerial finance]], which studies the [[financial management]] of all firms rather than corporations alone, the concepts are applicable to the financial problems of all firms,<ref name="Drake_Fabozzi">Pamela Drake and [[Frank Fabozzi]] (2009). [https://media.wiley.com/product_data/excerpt/52/04704073/0470407352.pdf What Is Finance?] {{Webarchive|url=https://web.archive.org/web/20230223003858/https://media.wiley.com/product_data/excerpt/52/04704073/0470407352.pdf |date=2023-02-23 }}</ref> and this area is then often referred to as "business finance".

Typically, "corporate finance" relates to the ''long term'' objective of maximizing the value of the [[Enterprise value|entity's assets]], its [[stock]], and its [[return on equity|return to shareholders]], while also [[Risk–return spectrum|balancing risk and profitability]]. This entails<ref>See [[Aswath Damodaran]], [http://pages.stern.nyu.edu/~adamodar/New_Home_Page/AppldCF/other/Image2.gif Corporate Finance: First Principles] {{Webarchive|url=https://web.archive.org/web/20161017190714/http://pages.stern.nyu.edu/~adamodar/New_Home_Page/AppldCF/other/Image2.gif |date=2016-10-17 }}</ref> three primary areas: 
#[[Capital budgeting]]: selecting which projects to invest in—here, accurately [[Corporate finance#Investment and project valuation|determining value]] is crucial, as judgements about asset values can be "make or break".<ref name="Irons">{{cite book |last1=Irons |first1=Robert |title=The Fundamental Principles of Finance |date=July 2019 |publisher=Routledge |location=Google Books |isbn=9781000024357 |url=https://play.google.com/store/books/details/Robert_Irons_The_Fundamental_Principles_of_Finance?id=tzr3DwAAQBAJ&hl=en_US&gl=US |access-date=3 April 2021 |archive-date=11 November 2021 |archive-url=https://web.archive.org/web/20211111150837/https://play.google.com/store/books/details/Robert_Irons_The_Fundamental_Principles_of_Finance?id=tzr3DwAAQBAJ&hl=en_US&gl=US |url-status=live }}</ref>
#[[Dividend policy]]: the use of "excess" funds—these are to be reinvested in the business or returned to shareholders.
#[[Capital structure]]: deciding on the mix of funding to be used—here attempting to find the [[Capital structure#Optimal capital structure|optimal capital mix]] re debt-commitments vs [[cost of capital]].
The latter [[Investment banking#Corporate finance|creates the link]] with [[investment banking]] and [[securities trading]], as above, in that the capital raised will generically comprise debt, i.e. [[corporate bond]]s, and [[Equity (finance)|equity]], often [[stock (finance)|listed shares]]. Re risk management within corporates, see [[#Risk management|below]].

Financial managers—i.e. as distinct from corporate financiers—focus more on the ''short term'' elements of profitability, cash flow, and "[[working capital management]]" ([[inventory]], credit and [[debtor]]s), ensuring that the firm can [[Corporate finance#Working capital management|safely and profitably]] carry out its financial ''and operational'' objectives; i.e. that it: (1) can service both maturing short-term debt repayments, and scheduled long-term debt payments, and (2) has sufficient cash flow for ongoing and upcoming [[operations management|operational expenses]]. (See [[Financial management]] and [[FP&A]].)
<!-- At more senior levels, financial managers are also involved with the longer term [[strategic financial management]] re capital structure and -investment. 
 -->

===Public finance===
[[File:20071203-Bush speech on budget Rose Garden.jpg|thumb|President [[George W. Bush]], speaking on the [[United States federal budget|Federal Budget]] in 2007, [[n:US Congress debates Iraq funding|requesting additional funds]] from [[United States Congress|Congress]]]]
[[File:2023-federal-budget-breakdown.png|thumb|322x322px|CBO: 2023 US Federal Budget Infographic]]

{{Main|Public finance}}
Public finance describes finance as related to sovereign states, sub-national entities, and related public entities or agencies. It generally encompasses a long-term strategic perspective regarding investment decisions that affect public entities.<ref>{{cite book|last1=Doss|first1=Daniel|last2=Sumrall|first2=William|last3=Jones|first3=Don|title=Strategic Finance for Criminal Justice Organizations|date=2012|publisher=CRC Press|location=Boca Raton, Florida|isbn=978-1439892237|page=23|edition=1st}}</ref> These long-term strategic periods typically encompass five or more years.<ref>{{cite book|last1=Doss|first1=Daniel|last2=Sumrall|first2=William|last3=Jones|first3=Don|title=Strategic Finance for Criminal Justice Organizations|date=2012|publisher=CRC Press|location=Boca Raton, Florida|isbn=978-1439892237|pages=53–54|edition=1st}}</ref> Public finance is primarily concerned with:<ref>{{Cite book |first1=Sharon |last1=Kioko |first2=Justin |last2=Marlowe |title=Financial Strategy for Public Managers |publisher=Rebus Foundation |url=https://press.rebus.community/financialstrategy/ |year=2016 |isbn=978-1-927472-59-0 |access-date=2022-07-05 |archive-date=2022-06-15 |archive-url=https://web.archive.org/web/20220615185910/https://press.rebus.community/financialstrategy/ |url-status=live }}</ref>
* Identification of [[government expenditures|required expenditures]] of a public sector entity;
* Source(s) of that [[government revenue|entity's revenue]];
* The [[government budget|budgeting process]];
* Sovereign [[Government bond|debt issuance]], or [[municipal bond]]s for [[public works]] projects.

Central banks, such as the [[Federal Reserve System]] banks in the [[United States]] and the [[Bank of England]] in the [[United Kingdom]], are strong players in public finance. They act as [[lender of last resort|lenders of last resort]] as well as strong influences on monetary and credit conditions in the economy.<ref>Board of Governors of Federal Reserve System of the United States. Mission of the Federal Reserve System. [http://www.federalreserve.gov/aboutthefed/mission.htm Federalreserve.gov] Accessed: 2010-01-16. (Archived by WebCite at  {{webarchive|url=https://web.archive.org/web/20100114154328/http://www.federalreserve.gov/aboutthefed/mission.htm |date=2010-01-14 }})</ref>

[[Development finance]], which is related, concerns investment in [[economic development]] projects provided by a [[Development finance institution#Typology|(quasi) governmental institution]] on a non-commercial basis; these projects would otherwise not be able [[Public utility#Finance|to get financing]]. A [[public–private partnership]] is primarily used for [[infrastructure]] projects: a private sector corporate provides the financing up-front, and then draws profits from taxpayers or users.
[[Climate finance]], and the related [[Environmental finance]], address the financial strategies, resources [[Climate_finance#Financial_instruments|and instruments]] used in [[climate change mitigation]].

===Investment management===
[[File:Stock Price Listing Numbers on a Korean Newspaper.jpg|thumb|[[Share price]]s listed in a Korean newspaper]]
[[File:Stock_ticker.jpg|thumb|"The excitement before the bubble burst"—viewing prices via [[ticker tape]], shortly before the [[Wall Street crash of 1929]]]]
[[File:E-ticker.jpg|thumb|A modern price-ticker. This infrastructure underpins contemporary exchanges, evidencing prices and related ticker symbols. The ticker symbol is represented by a unique set of characters used to identify the subject of the financial transaction.]]
{{main|Investment management}}
{{see also|Active management|Passive management}}
Investment management<ref name = "Drake_Fabozzi"/> is the professional asset management of various securities—typically shares and bonds, but also other assets, such as real estate, commodities and [[alternative investment]]s—in order to meet specified investment goals for the benefit of investors.

As above, investors may be institutions, such as insurance companies, pension funds, corporations, charities, educational establishments, or private investors, either directly via investment contracts or, more commonly, via collective investment schemes like mutual funds, [[exchange-traded funds]], or [[real estate investment trust]]s.

At the heart of investment management<ref name = "Drake_Fabozzi"/> is [[asset allocation]]—[[Diversification (finance)|diversifying the exposure]] among these [[asset classes]], and among individual securities within each asset class—as appropriate to the client's [[investment policy]], in turn, a function of risk profile, investment goals, and investment horizon (see [[Investor profile]]). Here:
*[[Portfolio optimization]] is the process of selecting the best portfolio given the client's objectives and constraints. 
*[[Fundamental analysis]] is the approach typically applied in [[valuation (finance)|valuing]] and evaluating the individual securities.
*[[Technical analysis]] is about forecasting future asset prices with past data.<ref>{{Cite journal |last1=Han |first1=Yufeng |last2=Liu |first2=Yang |last3=Zhou |first3=Guofu |last4=Zhu |first4=Yingzi |date=2021-05-21 |title=Technical Analysis in the Stock Market: A Review |url=https://papers.ssrn.com/abstract=3850494 |language=en |location=Rochester, NY|doi=10.2139/ssrn.3850494 |ssrn=3850494 |s2cid=235195430 |website=SSRN Papers}}</ref>

Overlaid is the portfolio manager's [[investment style]]—broadly, [[Active management|active]] vs [[passive management|passive]], [[value investing|value]] vs [[growth investing|growth]], and [[Small cap company|small cap]] vs. [[large cap]]—and [[investment strategy]].

In a well-diversified portfolio, achieved [[investment performance]] will, in general, largely be a function of the asset mix selected, while the individual securities are less impactful. The specific approach or philosophy will also be significant, depending on the extent to which it is complementary with the [[Stock market cycles|market cycle]].
Risk management here is discussed immediately below.

A [[quantitative fund]] is managed using [[Quantitative fund#Investment process|computer-based mathematical techniques]] (increasingly, [[machine learning]]) instead of human judgment. The actual trading [[automated trading system|is typically automated]] via [[algorithmic trading|sophisticated algorithms]].

===Risk management===
[[File:Crowds gathering outside New York Stock Exchange (4).jpg|thumb|Crowds gathering outside the New York Stock Exchange after the [[Wall Street crash of 1929]]]]
[[File:Northern Rock Queue.jpg|thumb|Customers queuing outside a [[Northern Rock]] branch in the [[United Kingdom]] to withdraw their savings during the [[2007–2008 financial crisis]]]]
{{main|Financial risk management}}
[[Risk management]], in general, is the study of how to control risks and balance the possibility of gains; it is the process of measuring risk and then developing and implementing strategies to manage that risk. 
[[Financial risk management]]<ref name="Christoffersen2011">{{Cite book |last=Peter F. Christoffersen |url=https://books.google.com/books?id=YkcMBGYbRasC |title=Elements of Financial Risk Management |date=22 November 2011 |publisher=Academic Press |isbn=978-0-12-374448-7}}</ref><ref name="Malz2011">{{Cite book |last=Allan M. Malz |url=https://books.google.com/books?id=rFX2f6AxH1QC |title=Financial Risk Management: Models, History, and Institutions |date=13 September 2011 |publisher=John Wiley & Sons |isbn=978-1-118-02291-7}}</ref> is the practice of protecting [[enterprise value|corporate value]] against [[financial risk]]s, often by [[hedge (finance)|"hedging"]] exposure to these using financial instruments. The focus is particularly on credit and market risk, and in banks, through regulatory capital, includes operational risk.
*[[Credit risk]] is the risk of [[Default (finance)|default on a debt]] that may arise from a borrower failing to make required payments; 
*[[Market risk]] relates to losses arising from movements in market variables such as prices and exchange rates;
*[[Operational risk]] relates to failures in internal processes, people, and systems, or to external events. 
Financial risk management is [[Corporate finance#Financial risk management|related to corporate finance]]<ref name = "Drake_Fabozzi"/> in two ways. Firstly, firm exposure to market risk is a direct result of previous capital investments and funding decisions; while credit risk arises from the business's credit policy and is often addressed through [[Trade credit insurance|credit insurance]] and [[Bad debt#Doubtful debt reserve|provisioning]].Secondly, both disciplines share the goal of enhancing or at least preserving, the firm's [[economic value]], and in this context<ref>John Hampton (2011). ''The AMA Handbook of Financial Risk Management''. [[American Management Association]]. {{ISBN|978-0814417447}}</ref> overlaps also [[enterprise risk management]], typically the domain of [[strategic management]].  Here, businesses devote much time and effort to [[financial forecast|forecasting]], [[FP&A|analytics]] and [[Managerial finance#Managerial accounting techniques|performance monitoring]]. (See [[Asset and liability management|ALM]] and [[treasury management]].)

[[Financial risk management#Banking|For banks]] and other wholesale institutions,<ref name="DeMeo"/> risk management [[Quantitative analysis (finance)#Risk management|focuses on]] managing, and as necessary hedging, the various positions held by the institution—both [[trading book|trading positions]] and [[banking book|long term exposures]]—and on calculating and monitoring the resultant [[economic capital]], and [[regulatory capital]] under [[Basel III]]. The calculations here are mathematically sophisticated, and within the domain of [[quantitative finance]] as below. Credit risk is inherent in the business of banking, but additionally, these institutions are exposed to [[counterparty credit risk]]. Banks typically employ [[Middle office]] [[Investment banking#Risk management|"Risk Groups"]], whereas [[front office]] risk teams provide risk "services" (or "solutions") to customers.

Additional to [[diversification (finance)|diversification]], the fundamental risk mitigant here, [[Financial risk management#Investment management|investment managers will apply]] various hedging techniques as appropriate,<ref name = "Drake_Fabozzi"/> these may relate to the [[Portfolio insurance|portfolio as a whole]] or [[Hedge (finance)#Hedging a stock price|to individual stocks]]. [[Bond fund|Bond portfolios]] are often (instead) managed via [[cashflow matching|cash flow matching]] or [[immunization (finance)|immunization]], while for derivative portfolios and positions, traders use [[Greeks (finance)#Use of the Greeks|"the Greeks"]] to measure and then offset sensitivities. In parallel, managers – [[active management|active]] and [[Passive management|passive]] – [[Performance attribution|will monitor]] [[tracking error]], thereby minimizing and preempting any underperformance [[Investment management#Risk-adjusted performance measurement|vs their "benchmark"]].

===Quantitative finance===
[[File:Dojima-Rice-Exchange-Osaka-by-Yoshimitsu-Sasaki.png|thumb|right|alt=Dōjima Rice Exchange, the world's first futures exchange, established in Osaka in 1697.|[[Dōjima Rice Exchange]], the world's first [[futures exchange]], established in [[Osaka]] in 1697]]
{{main|Quantitative analysis (finance)}}
Quantitative finance—also referred to as "mathematical finance"—includes those finance activities where [[Financial modeling#Quantitative finance|a sophisticated mathematical model]] is required,<ref name="SIAM">See discussion here: {{cite web |url=https://www.siam.org/Portals/0/Student%20Programs/Thinking%20of%20a%20Career/brochure.pdf |archive-url=https://web.archive.org/web/20190305095047/https://www.siam.org/Portals/0/Student%20Programs/Thinking%20of%20a%20Career/brochure.pdf |archive-date=2019-03-05 |url-status=live |title=Careers in Applied Mathematics|publisher=[[Society for Industrial and Applied Mathematics]]}}</ref> and thus overlaps several of the above.

As a specialized practice area, quantitative finance comprises primarily three sub-disciplines; the underlying theory and techniques [[#Financial mathematics|are discussed]] in the next section:
#Quantitative finance is often synonymous with [[financial engineering]]. This area generally underpins a bank's [[Investment banking#Sales and trading|customer-driven derivatives business]]—delivering bespoke [[Over-the-counter (finance)#Contracts|OTC-contracts]] and [[exotic derivative|"exotics"]], and [[Structured product#Product design and manufacture|designing]] the various structured products and solutions mentioned—and encompasses [[Financial modeling#Quantitative finance|modeling and programming]] in support of the initial trade, and its subsequent hedging and management.
#Quantitative finance also significantly overlaps [[financial risk management]] in banking, as [[#Risk management|mentioned]], both as regards this hedging, and as regards economic capital as well as compliance with regulations and [[Basel III|the Basel capital / liquidity requirements]]. 
#"Quants" are also responsible for building and deploying the investment strategies at the quantitative funds [[#Investment management|mentioned]]; they are also involved in [[Outline of finance#Quantitative investing|quantitative investing]] more generally, in areas such as [[trading strategy]] formulation, and in [[automated trading]], [[high-frequency trading]], [[algorithmic trading]], and [[program trading]].

==Financial theory==
{| class="wikitable floatright" | width="250"
|- style="text-align:left;"
|{{smalldiv|
:<math>
\sum_{t=1}^n \frac{FCFF_t}{(1+WACC_{t})^t} +
 \frac{\left[\frac{FCFF_{n+1}}{(WACC_{n+1}-g_{n+1})}\right]}{(1+WACC_{n})^n}
</math>
}}
{{small|[[Valuation using discounted cash flows#Basic formula for firm valuation using DCF model|DCF valuation formula]] widely applied in business and finance, since articulated [[The Theory of Investment Value|in 1938]]. Here, to get the [[business valuation|value of the firm]], its forecasted [[free cash flow]]s are discounted to the present using the [[weighted average cost of capital]] for the discount factor.
For [[stock valuation|share valuation]] investors use the related [[dividend discount model]].}}
|}
Financial theory is studied and developed within the disciplines of [[Management#Training and education|management]], [[financial economics|(financial)]] [[economics]], [[accountancy]] and [[applied mathematics]].
In the abstract,<ref name = "Drake_Fabozzi"/><ref name= "Fama and Miller"/> ''finance'' is concerned with the investment and deployment of [[asset]]s and [[Liability (financial accounting)|liabilities]] over "space and time"; i.e., it is about performing [[valuation (finance)|valuation]] and [[asset allocation]] today, based on the risk and uncertainty of future outcomes while appropriately incorporating the [[time value of money]]. 
Determining the [[present value]] of these future values, "discounting", must be at the [[required rate of return|risk-appropriate discount rate]], in turn, a major focus of finance-theory.<ref name="freedictionary">[https://financial-dictionary.thefreedictionary.com/finance "Finance"] {{Webarchive|url=https://web.archive.org/web/20191222201948/https://financial-dictionary.thefreedictionary.com/Finance |date=2019-12-22 }} Farlex Financial Dictionary. 2012</ref><!-- Participants in the [[market (economics)|market]] aim to price assets based on their risk level, fundamental value, and their expected [[rate of return]]. 
The core finance theories can be divided between the following categories: [[financial economics]], [[mathematical finance]] and [[Valuation (finance)|valuation theory]].  
-->As financial theory has roots in many disciplines, including mathematics, statistics, economics, physics, and psychology, it can be considered a mix of an [[art]] and [[science]],<ref>{{Cite web|title = Finance|url =https://www.investopedia.com/terms/f/finance.asp|website = Investopedia|date=May 23, 2023|access-date = July 1, 2023}}</ref> and there are ongoing related efforts to organize a [[list of unsolved problems in finance]].

===Managerial finance===
<!-- {{Unreferenced section|date=June 2023}} -->
[[Image:Manual decision tree.jpg|right|thumb|[[Decision tree]]s, a more sophisticated valuation-approach, sometimes applied to corporate finance [[Corporate finance#Investment and project valuation|"project" valuations]] (and a standard<ref>A. Pinkasovitch (2021). [https://www.investopedia.com/articles/financial-theory/11/decisions-trees-finance.asp Using Decision Trees in Finance] {{Webarchive|url=https://web.archive.org/web/20211210085522/https://www.investopedia.com/articles/financial-theory/11/decisions-trees-finance.asp |date=2021-12-10 }}</ref> in [[business school]] curricula); various scenarios are considered, and their discounted cash flows are probability weighted.]]
{{Main|Managerial finance}}
Managerial finance 
<ref name ="cfi">[https://corporatefinanceinstitute.com/resources/knowledge/finance/managerial-finance/ What is managerial finance?], [[Corporate Finance Institute]]</ref> 
is the branch of finance that deals with the financial aspects of the [[management]] of a company, and the financial dimension of managerial decision-making more broadly. It provides the [[Management#Theoretical scope|theoretical underpin]] for the practice [[#Corporate finance|described above]], concerning itself with the [[Management#Implementation of policies and strategies|managerial application]] of the various [[financial analysis|finance techniques]]. Academics working in this area are typically based in [[business school]] finance departments, in [[accounting]], or in [[management science]].

The tools addressed and developed relate in the main to [[managerial accounting]] and [[corporate finance]]: 
the former allow management to better understand, and hence act on, financial information relating to [[profitability]] and performance; the latter, as above, are about optimizing the overall financial structure, including its impact on working capital. Key aspects of managerial finance thus include:
# Financial planning and forecasting
# Capital budgeting
# Capital structure
# Working capital management
# Risk management
# Financial analysis and reporting.
The discussion, however, extends to [[business strategy]] more broadly, emphasizing alignment with the company's overall strategic objectives; and similarly incorporates the [[Management#Theoretical scope|managerial perspectives]] of planning, directing, and controlling.

===Financial economics===
[[File:markowitz frontier.jpg|right|thumb|The "[[efficient frontier]]", a prototypical concept in portfolio optimization. Introduced [[Markowitz model|in 1952]], it remains "a mainstay of investing and finance".<ref>W. Kenton (2021). [https://www.investopedia.com/terms/h/harrymarkowitz.asp "Harry Markowitz"] {{Webarchive|url=https://web.archive.org/web/20211126113108/https://www.investopedia.com/terms/h/harrymarkowitz.asp |date=2021-11-26 }}, investopedia.com</ref> 
An "efficient" portfolio, i.e. combination of assets, has the best possible expected return for its level of risk (represented by the standard deviation of return).]]
[[Image:MM2.png|thumb|right|[[Modigliani–Miller theorem]], a foundational element of finance theory, introduced in 1958; it forms the basis for modern thinking on [[capital structure]]. Even if [[leverage (finance)|leverage]] ([[Debt to equity ratio|D/E]]) increases, the [[weighted average cost of capital|WACC]] (k0) stays constant.]]
{{Main|Financial economics}}
Financial economics<ref name="Sharpe">For an overview, see [http://www.stanford.edu/~wfsharpe/mia/int/mia_int2.htm "Financial Economics"] {{Webarchive|url=https://web.archive.org/web/20040604105441/http://www.stanford.edu/~wfsharpe/mia/int/mia_int2.htm |date=2004-06-04 }}, [[William F. Sharpe]] (Stanford University manuscript)</ref> is the branch of [[economics]] that studies the interrelation of financial [[Variable (mathematics)|variables]], such as [[price]]s, [[interest rate]]s and shares, as opposed to [[Real vs. nominal in economics|real]] economic variables, i.e. [[goods and services]]. It thus centers on pricing, decision making, and risk management in the [[financial market]]s,<ref name="Sharpe"/><ref name= "Fama and Miller"/> and produces many of the commonly employed [[financial model]]s. ([[Financial econometrics]] is the branch of financial economics that uses econometric techniques to parameterize the relationships suggested.)

The discipline has two main areas of focus:<ref name= "Fama and Miller">See the discussion re finance theory by Fama and Miller under {{slink||Notes}}.</ref> [[asset pricing]] and corporate finance; the first being the perspective of providers of capital, i.e. investors, and the second of users of capital; respectively:
# Asset pricing theory develops the models used in determining the risk-appropriate discount rate, and in pricing derivatives; and includes the [[outline of finance#Portfolio theory|portfolio-]] and [[investment theory]] applied in asset management. The analysis essentially explores how [[homo economicus|rational investors]] would apply risk and return to the problem of [[investment]] under uncertainty, producing the key "[[Fundamental theorem of asset pricing]]". Here, the twin assumptions of [[rational pricing|rationality]] and [[efficient-market hypothesis|market efficiency]] lead to [[modern portfolio theory]] (the [[Capital asset pricing model|CAPM]]), and to the [[Black–Scholes model|Black–Scholes]] theory for [[Valuation of options|option valuation]]. At more advanced levels—and often in response to [[financial crisis|financial crises]]—the study [[Financial economics#Extensions|then extends]] these [[Neoclassical economics#Rational Behavior Assumptions|"neoclassical" models]] to incorporate phenomena where their assumptions do not hold, or to more general settings.
# Much of [[Outline of finance#Corporate finance theory|corporate finance theory]], by contrast, considers investment under "[[certainty]]" ([[Fisher separation theorem]], [[The Theory of Investment Value|"theory of investment value"]], and [[Modigliani–Miller theorem]]). Here, theory and methods are developed for the decisioning about funding, dividends, and capital structure discussed above. A recent development is [[Financial economics#Corporate finance theory|to incorporate uncertainty]] and [[contingent claim valuation|contingency]]—and thus various elements of asset pricing—into these decisions, employing for example [[real options analysis]].

===Financial mathematics===
{| class="wikitable floatright" | width="250"
|- style="text-align:left;"
|{{smalldiv|
:<math>\begin{align}
  C(S, t) &= N(d_1)S - N(d_2) Ke^{-r(T - t)} \\
     d_1 &= \frac{1}{\sigma\sqrt{T - t}}\left[\ln\left(\frac{S}{K}\right) + \left(r + \frac{\sigma^2}{2}\right)(T - t)\right] \\
     d_2 &= d_1 - \sigma\sqrt{T - t} \\
\end{align}</math>
[[Black–Scholes model#Black–Scholes formula|The Black–Scholes formula]] for the value of a [[call option]]. Although lately its use is [[Financial economics#Departures from normality|considered naive]], it has underpinned the development of derivatives-theory, and financial mathematics more generally, since its introduction in 1973.<ref>[https://priceonomics.com/the-history-of-the-black-scholes-formula/ "The History of the Black-Scholes Formula"] {{Webarchive|url=https://web.archive.org/web/20211126125626/https://priceonomics.com/the-history-of-the-black-scholes-formula/ |date=2021-11-26 }}, priceonomics.com</ref>}}
|}
[[File:OAS valuation tree (es).png|thumb|[[Lattice model (finance)|"Trees"]] are widely applied in mathematical finance; here used in calculating an [[option adjusted spread|OAS]]. Other common pricing-methods are [[Monte Carlo methods in finance#Overview|simulation]] and [[Finite difference methods for option pricing|PDEs]]. These are used for settings beyond [[Black–Scholes model#Fundamental hypotheses|those envisaged]] by Black-Scholes. 
[[Valuation of options#Post crisis|Post crisis]], even in those settings, banks use [[local volatility|local]] and [[stochastic volatility]] models to incorporate the [[volatility surface]], while the [[xVA]] adjustments accommodate [[counterparty credit risk|counterparty]] and capital considerations.]]
{{Main|Mathematical finance}}
{{see also|Quantitative analysis (finance)|Financial modeling#Quantitative finance}}
Financial mathematics<ref name="SIAM2">[https://www.siam.org/research-areas/detail/financial-mathematics-and-engineering# Research Area: Financial Mathematics and Engineering] {{Webarchive|url=https://web.archive.org/web/20220516114958/https://www.siam.org/research-areas/detail/financial-mathematics-and-engineering |date=2022-05-16 }}, Society for Industrial and Applied Mathematics</ref> is the field of [[applied mathematics]] concerned with [[financial market]]s; 
[[Louis Bachelier#The doctoral thesis|Louis Bachelier's doctoral thesis]], defended in 1900, is considered to be the first scholarly work in this area. The field is largely focused on the [[Outline of finance#Derivatives pricing|modeling of derivatives]]—with much emphasis on [[Interest rate derivative|interest rate-]] and [[Credit derivative|credit risk modeling]]—while other important areas include [[actuarial science|insurance mathematics]] and [[Outline of finance#Mathematical techniques|quantitative portfolio management]]. Relatedly, the techniques developed [[contingent claim analysis|are applied]] to pricing and hedging a wide range of [[Asset-backed security|asset-backed]], [[Government bond|government]], and [[Capital structure|corporate]]-securities.

As [[#Quantitative_finance|above]], in terms of practice, the field is referred to as quantitative finance and / or mathematical finance, and comprises primarily the three areas discussed.
The [[Outline of finance#Mathematical tools|main mathematical tools]] and techniques are, correspondingly:
*for derivatives,<ref name="Mastro">For a survey, see [https://catalogimages.wiley.com/images/db/pdf/9781118487716.excerpt.pdf "Financial Models"] {{Webarchive|url=https://web.archive.org/web/20211113134700/https://catalogimages.wiley.com/images/db/pdf/9781118487716.excerpt.pdf |date=2021-11-13 }}, from Michael Mastro (2013). ''Financial Derivative and Energy Market Valuation'', John Wiley & Sons. {{ISBN| 978-1118487716}}.</ref> [[Itô calculus|Itô's stochastic calculus]], [[Monte Carlo methods in finance|simulation]], and [[partial differential equation]]s; see aside boxed discussion re the prototypical [[Black-Scholes]] and [[Valuation of options#Pricing models|the various numeric techniques]] now applied
*for risk management,<ref name="DeMeo">See generally, Roy E. DeMeo (N.D.) [https://mathfinance.charlotte.edu/sites/mathfinance.charlotte.edu/files/media/An%20Introduction%20to%20Value%20At%20Risk%20New.pdf Quantitative Risk Management: VaR and Others] {{Webarchive|url=https://web.archive.org/web/20211112082350/https://mathfinance.charlotte.edu/sites/mathfinance.charlotte.edu/files/media/An%20Introduction%20to%20Value%20At%20Risk%20New.pdf |date=2021-11-12 }}</ref> [[value at risk]], [[stress test (financial)|stress testing]] and [[PnL Explained#Sensitivities method|"sensitivities" analysis]] (applying the "greeks"); the underlying mathematics comprises [[Mixture model#A financial model|mixture models]], [[Principal component analysis#Quantitative finance|PCA]], [[volatility clustering]] and [[Copula (probability theory)#Quantitative finance|copulas]].<ref>See for example III.A.3, in Carol Alexander, ed. (January 2005). ''The Professional Risk Managers' Handbook''. PRMIA Publications. {{ISBN|978-0976609704}}</ref>
*in both of these areas, and particularly for portfolio problems, quants employ [[Outline of finance#Mathematical techniques|sophisticated optimization techniques]]

Mathematically, these separate into [[Mathematical finance#History: Q versus P|two analytic branches]]: derivatives pricing uses [[Risk-neutral measure|risk-neutral probability]] (or [[rational pricing|arbitrage-pricing]] probability), denoted by "Q"; while risk and portfolio management generally use physical (or actual or actuarial) probability, denoted by "P". These are interrelated through the above "[[Fundamental theorem of asset pricing]]".

The subject has a close relationship with financial economics, which, as outlined, is concerned with much of the underlying theory that is involved in financial mathematics:  generally, financial mathematics will derive and extend the [[mathematical model]]s suggested. [[Computational finance]] is the branch of (applied) [[computer science]] that deals with problems of practical interest in finance, and especially<ref name="SIAM2"/> emphasizes the [[numerical methods]] applied here.

===Experimental finance===
{{Main|Experimental finance}}

[[Experimental finance]]<ref name=ssrn>Bloomfield, Robert and Anderson, Alyssa. [http://fasri.net/wp-content/uploads/2009/10/experimental-finance-chapter-_wiley_.pdf "Experimental finance"] {{Webarchive|url=https://web.archive.org/web/20160304033849/http://fasri.net/wp-content/uploads/2009/10/experimental-finance-chapter-_wiley_.pdf |date=2016-03-04 }}. In Baker, H. Kent, and Nofsinger, John R., eds. Behavioral finance: investors, corporations, and markets. Vol. 6. John Wiley & Sons, 2010. pp. 113-131. {{ISBN|978-0470499115}}</ref> aims to establish different market settings and environments to experimentally observe and provide a lens through which science can analyze agents' behavior and the resulting characteristics of trading flows, information diffusion, and aggregation, price setting mechanisms, and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions and therefore prove them, as well as attempt to discover new principles on which such theory can be extended and be applied to future financial decisions. Research may proceed by conducting trading simulations or by establishing and studying the behavior of people in artificial, competitive, market-like settings.

===Behavioral finance===
{{Main|Behavioral economics}}

[[Behavioral finance]] studies how the ''[[psychology]]'' of investors or managers affects financial decisions and markets<ref>Glaser, Markus and Weber, Martin and Noeth, Markus. (2004). [https://madoc.bib.uni-mannheim.de/2770/1/dp03_14.pdf "Behavioral Finance"] {{Webarchive|url=https://web.archive.org/web/20230209093116/https://madoc.bib.uni-mannheim.de/2770/1/dp03_14.pdf |date=2023-02-09 }}, pp. 527–546 in ''Handbook of Judgment and Decision Making'', Blackwell Publishers {{ISBN|978-1-405-10746-4}}</ref> 
and is relevant when making a decision that can impact either negatively or positively on one of their areas. With more in-depth research into behavioral finance, it is possible to bridge what actually happens in financial markets with analysis based on financial theory.<ref>{{Cite journal |last1=Zahera |first1=Syed Aliya |last2=Bansal |first2=Rohit |date=2018-05-08 |title=Do investors exhibit behavioral biases in investment decision making? A systematic review |url=https://www.emerald.com/insight/content/doi/10.1108/QRFM-04-2017-0028/full/html |journal=Qualitative Research in Financial Markets |language=en |volume=10 |issue=2 |pages=210–251 |doi=10.1108/QRFM-04-2017-0028 |issn=1755-4179 |access-date=2022-04-08 |archive-date=2022-04-08 |archive-url=https://web.archive.org/web/20220408144635/https://www.emerald.com/insight/content/doi/10.1108/QRFM-04-2017-0028/full/html |url-status=live }}</ref> Behavioral finance has grown over the last few decades to become an integral aspect of finance.<ref>{{cite book|last1=Shefrin|first1=Hersh|title=Beyond greed and fear: Understanding behavioral finance and the psychology of investing|date=2002|publisher=Oxford University Press|location=New York|isbn=978-0195304213|page=ix|url=https://archive.org/details/beyondgreedfearu00shef|url-access=registration|quote=growth of behavioral finance.|access-date=8 May 2017}}</ref>

Behavioral finance includes such topics as:
# Empirical studies that demonstrate significant deviations from classical theories;
# Models of how psychology affects and impacts trading and prices;
# Forecasting based on these methods;
# Studies of experimental asset markets and the use of models to forecast experiments.

A strand of behavioral finance has been dubbed [[quantitative behavioral finance]], which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. 
<!-- Some of these endeavors has been led by [[Gunduz Caginalp]] (Professor of Mathematics and Editor of [[Journal of Behavioral Finance]] during 2001–2004) and collaborators including [[Vernon L. Smith|Vernon Smith]] (2002 Nobel Laureate in Economics), David Porter, Don Balenovich, Vladimira Ilieva, Ahmet Duran). Studies by Jeff Madura, Ray Sturm, and others have demonstrated significant behavioral effects in stocks and exchange-traded funds. Among other topics, quantitative behavioral finance studies behavioral effects together with the non-classical assumption of the finiteness of assets. --><!--
Doesn't really belong under the theory section...
===Intangible asset finance===
{{Main|Intangible asset finance}}

Intangible asset finance is the area of finance that deals with intangible assets such as patents, trademarks, goodwill, reputation, etc.

Intangible assets are divided into indefinite or definite. The brand name of a company is an indefinite asset; it stays with the company throughout its existence. A patent, however, granted to that company for a limited amount of time would be a definite intangible asset.<ref>{{Cite web|url=http://www.investopedia.com/terms/i/intangibleasset.asp|title=Intangible Asset Definition {{!}} Investopedia|last=root|date=2003-11-20|language=en-US|access-date=2016-06-27}}</ref>
--><!-- === Environmental finance ===
{{excerpt|Environmental finance|paragraphs=1|file=no}} -->
=== Quantum finance ===
{{Unreferenced section|date=June 2023}}
{{Main|Quantum finance}}
Quantum finance involves applying quantum mechanical approaches to financial theory, providing novel methods and perspectives in the field.<ref>{{Cite journal |last1=Focardi |first1=Sergio |last2=Fabozzi |first2=Frank J. |last3=Mazza |first3=Davide |date=2020-08-31 |title=Quantum Option Pricing and Quantum Finance |url=http://pm-research.com/lookup/doi/10.3905/jod.2020.1.111 |journal=The Journal of Derivatives |language=en |volume=28 |issue=1 |pages=79–98 |doi=10.3905/jod.2020.1.111 |issn=1074-1240}}</ref>  ''Quantum'' ''finance'' is an interdisciplinary field, in which theories and methods developed by ''quantum'' physicists and economists are applied to solve financial problems. It represents a branch known as econophysics. Although ''quantum'' computational methods have been around for quite some time and use the basic principles of physics to better understand the ways to implement and manage cash flows, it is mathematics that is actually important in this new scenario<ref>{{Cite journal |last=Ristic |first=Kristijan |date=2–3 December 2021 |title=New Financial Future: Digital Finance As a key Aspect of Financial Innovation |url=https://www.proquest.com/docview/2616890742 |journal=75th International Scientific Conference on Economic and Social Development |pages=283–288 |id={{ProQuest|2616890742}} |via=Proquest}}</ref> Finance theory is heavily based on financial instrument pricing such as [[stock option]] pricing. Many of the problems facing the finance community have no known analytical solution. As a result, numerical methods and computer simulations for solving these problems have proliferated. This research area is known as [[computational finance]]. Many computational finance problems have a high degree of computational complexity and are slow to converge to a solution on classical computers. In particular, when it comes to option pricing, there is additional complexity resulting from the need to respond to quickly changing markets. For example, in order to take advantage of inaccurately priced stock options, the computation must complete before the next change in the almost continuously changing stock market. As a result, the finance community is always looking for ways to overcome the resulting performance issues that arise when pricing options. This has led to research that applies alternative computing techniques to finance. Most commonly used quantum financial models are quantum continuous model, quantum binomial model, multi-step quantum binomial model etc.

== History of finance ==

{{further|History of money|History of banking|History of investment|Financial centre#History|Corporate finance#History|Quantitative analysis (finance)#History|Financial crisis#History|Global financial system#History of international financial architecture}}
{{See also|:Category:History of finance}}

The origin of finance can be traced to the beginning of state formation and trade during the [[Bronze Age]]. The earliest historical evidence of finance is dated to around 3000 BCE. Banking originated in West Asia, where temples and palaces were used as safe places for the storage of valuables. Initially, the only valuable that could be deposited was grain, but cattle and precious materials were eventually included. During the same period, the Sumerian city of [[Uruk]] in [[Mesopotamia]] supported trade by lending as well as the use of interest. In Sumerian, "interest" was ''mas'', which translates to "calf". In Greece and Egypt, the words used for interest, ''tokos'' and ''ms'' respectively, meant "to give birth". In these cultures, interest indicated a valuable increase, and seemed to consider it from the lender's point of view.<ref>{{Cite book|last=Fergusson|first=Nial|title=The Ascent of Money|publisher=Penguin Books|location=United States}}</ref> The [[Code of Hammurabi]] (1792–1750 BCE) included laws governing banking operations. The Babylonians were accustomed to charging interest at the rate of 20 percent per year. By 1200 BCE, [[cowrie]] shells were used as a form of money in [[China]].

The use of coins as a means of representing money began in the years between 700 and 500 BCE.<ref>{{Cite web|title=babylon-coins.com|url=http://babylon-coins.com/tast1.html|access-date=2021-05-13|website=babylon-coins.com|archive-date=2021-06-15|archive-url=https://web.archive.org/web/20210615134016/http://babylon-coins.com/tast1.html|url-status=live}}</ref> Herodotus mentions the use of crude coins in [[Lydia]] around 687 BCE and, by 640 BCE, the Lydians had started to use coin money more widely and opened permanent retail shops.<ref>{{Cite web |title=Herodotus on Lydia |url=https://www.worldhistory.org/article/81/herodotus-on-lydia/ |url-status=live |archive-url=https://web.archive.org/web/20210513152131/https://www.worldhistory.org/article/81/herodotus-on-lydia/ |archive-date=2021-05-13 |access-date=2021-05-13 |website=World History Encyclopedia |language=en}}</ref> Shortly after, cities in [[Classical Greece]], such as [[Aegina]], [[Athens]], and [[Corinth]], started minting their own coins between 595 and 570 BCE. During the [[Roman Republic]], interest was outlawed by the ''Lex Genucia'' reforms in 342 BCE, though the provision went largely unenforced. Under [[Julius Caesar]], a ceiling on interest rates of 12% was set, and much later under [[Justinian]] it was lowered even further to between 4% and 8%.<ref>{{Cite web |title=History of Usury Prohibition – IslamiCity |url=https://www.islamicity.org/2773/history-of-usury-prohibition/ |access-date=2023-04-09 |website=islamicity.org |archive-date=2023-04-09 |archive-url=https://web.archive.org/web/20230409014040/https://www.islamicity.org/2773/history-of-usury-prohibition/ |url-status=live }}</ref>

The first stock exchange was opened in [[Antwerp]] in 1531.<ref>{{cite web |title=Handelsbeurs |lang=nl |trans-title=Trade fair |url=https://visit.antwerpen.be/info/handelsbeurs |website=Visit Antwerp |access-date=2 September 2022 |quote=The 'Nieuwe Beurs' was built in 1531 because the 'Old Beurs' in Hofstraat had become too small. It was the first stock exchange ever built specifically for that purpose and later became the example for all stock exchange buildings in the world. }}</ref> Since then, popular exchanges such as the [[London Stock Exchange]] (founded in 1773) and the [[New York Stock Exchange]] (founded in 1793) were created.<ref>{{cite web |title=Our History |url=https://www.londonstockexchange.com/discover/lseg/our-history |website=London Stock Exchange |access-date=2 September 2022 |archive-date=2 September 2022 |archive-url=https://web.archive.org/web/20220902213413/https://www.londonstockexchange.com/discover/lseg/our-history |url-status=live }}</ref><ref>{{cite web |url=https://guides.loc.gov/wall-street-history/exchanges |website=Library of Congress |access-date=2 September 2022 |title=Research Guides: Wall Street and the Stock Exchanges: Historical Resources: Stock Exchanges |archive-date=4 August 2022 |archive-url=https://web.archive.org/web/20220804230415/https://guides.loc.gov/wall-street-history/exchanges |url-status=live }}</ref>

==See also==
* [[2007–2008 financial crisis]]
* [[Outline of finance]]

==Notes==
{{Notelist}}

==References==
{{Reflist}}

== Further reading ==
* {{cite book |last=Graham |first=Benjamin |author-link=Benjamin Graham |author2=[[Jason Zweig]] |others=Warren E. Buffett (collaborator) |title=The Intelligent Investor |orig-year=1949 |url=https://archive.org/details/harrypotterhalfb00rowl_0 |edition=2003 |date=2003-07-08 |publisher=[[HarperCollins]] |isbn=0-06-055566-1 |no-pp=true |page=front cover}}
* {{cite book|title=Security Analysis: The Classic 1934 Edition|last1=Graham|first1=Benjamin|author2-link=David Dodd |last2=Dodd|first2=David LeFevre|isbn=978-0-070-24496-2|lccn=34023635| url=https://books.google.com/books?id=wXlrnZ1uqK0C| year=1934|publisher=[[McGraw-Hill Education]]}}
* {{cite book
  | last =Bogle
  | first =John Bogle
  | authorlink =John C. Bogle
  | title =The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
  | publisher =John Wiley and Sons
  | year =2007
  | pages =[https://archive.org/details/littlebookofcomm00bogl/page/216 216]
  | url =https://archive.org/details/littlebookofcomm00bogl
  | url-access =registration
  | doi =
  | isbn =9780470102107 }}
* {{cite book|title=The Essays of Warren Buffett: Lessons for Investors and Managers|author1-link=Warren Buffett |last1=Buffett|first1=W.|last2=Cunningham|first2=L.A.|isbn=978-0-470-82441-2|  url=https://books.google.com/books?id=njy3PQAACAAJ|year=2009|publisher=[[Wiley (publisher)|John Wiley & Sons (Asia) Pte Limited]]}}
*[[Robert Kiyosaki|Kiyosaki, Robert]] and [[Sharon Lechter]] (2000).  ''[[Rich Dad Poor Dad]]: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!'' [[Warner Business Books]]. {{ISBN|0-446-67745-0}} 
* {{cite book|title=The Millionaire Next Door|author1-link=Thomas J. Stanley|last1=Stanley|first1=Thomas J.|last2=Danko|first2=W.D. |isbn=978-0-671-01520-6|lccn=98046515| url=https://books.google.com/books?id=ldpaww5kkmoC|year=1998|publisher=[[Gallery Books]] }}
* {{cite book|title=The Alchemy of Finance: Reading the Mind of the Market|author=[[George Soros|Soros, George]]|isbn=978-0-671-66238-7|lccn=87004745|series=A Touchstone book|url=https://books.google.com/books?id=JDSii-QgejoC|year=1988|publisher=[[Simon & Schuster]] }}
* {{cite book|title=Common Stocks and Uncommon Profits and Other Writings|author=[[Philip Arthur Fisher|Fisher, Philip Arthur]]|isbn=978-0-471-11927-2|lccn=95051449|series=Wiley Investment Classics|url=https://books.google.com/books?id=UES-QgAACAAJ|year=1996|publisher=[[Wiley (publisher)|Wiley]] }}

==External links==
{{Sister project links|s=1911 Encyclopædia Britannica/Finance}}
<!-- Do not add advertising or commercial links to this article. -->
* [https://www.investopedia.com/terms/f/finance.asp Finance Definition] ([[Investopedia]])
* [https://people.duke.edu/~charvey/Classes/wpg/glossary.htm Hypertextual Finance Glossary] ([[Campbell Harvey]])
* [http://www.vernimmen.com/Practice/Glossary.php Finance Glossary] ([[Pierre Vernimmen]])
* [https://www.risk.net/glossary Glossary of financial risk management terms] ([[Risk (magazine)|Risk.net]])
*[https://www.pimco.com/us/en/resources/glossary Glossary of Key Investment Terms] ([[PIMCO]])
* [http://pages.stern.nyu.edu/~adamodar/ Corporate finance resources] ([[Aswath Damodaran]])
* [https://web.utk.edu/~jwachowi/wacho_world.html Financial management resources] ([[James Van Horne]])
* [https://www.mymoney.gov/mymoneyfive Personal finance resources] ([[Financial Literacy and Education Commission]], mymoney.gov)
* [https://gsdrc.org/professional-dev/public-financial-management/ Public finance resources] (Governance and Social Development Resource Centre, gsdrc.org) [{{Webarchive|url=https://web.archive.org/web/20230602184354/https://gsdrc.org/professional-dev/public-financial-management/ |date=2023-06-02 }}]
* [https://globalriskinstitute.org/resources/ Risk management resources] ([[Global Risk Institute]])

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{{Finance}} 
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[[Category:Finance| ]]