The Applications of Quantitative Finance in the Market
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Abstract
An investment decision has become an extensively complicated undertaking in the contemporary finance sphere, dotted by increased volatility, uncertainty, complexity, and ambiguity. Today, investors look beyond financial performance to encapsulate a companys Environmental Social and Governance (ESG) performance and the execution of its social responsibilities to impact society and the planet. The broadening of factors of consideration in an investment decision has propagated an increase in the reliance on quantitative finance. Principally, quantitative finance is an amalgam of mathematical and computational tools that can be used to assess portfolio risks, optimize investment strategies, and increase market efficiency. Therefore, the current study seeks to explore how quantitative finance has transformed the market and is increasingly being leveraged to engender greater returns on investment. Even though the models improve portfolio performance, they are often limited in predicting security performance during rare events such as financial crises. Therefore, there is a need to combine quantitative and qualitative approaches to circumvent the limitations of either model. The paper contributes to the existing body of knowledge by elucidating how quantitative finance can be used to navigate the changing financial market landscape.