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1. Introduction, Financial Terms and Concepts

1. Introduction, Financial Terms and Concepts

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MIT 18.S096 Topics in Mathematics with Applications in Finance, Fall 2013 View the complete course: …

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  6. I've been thinking about this whole investment think. Somehow, I think the equations are wrong, Here's what I think. You have 1$. You go and buy bread. 1$ = 1 bread. You have 1$. You go and invest. After a day, if everything goes really well, you get 2 $. But 1$ != 2$. So, during that time, something happened to the dollar. What exactly happened? Well, the value of the stocks fluctuated. Because of the fluctuation, the stocks you invested in gained more value. So, the value of the $ you invested represents a function that describes the fluctuation. But since it represents something different than the $ you used to buy bread, it's not correct to use the same sign. You can't use the same notation for something that represents a fluctuation and also something that represent value at a given moment. So, in order for this to make sense, you need to consider that the $ you use to invest is actually d$/dt. A derivative. In the same way acceleration is the derivative of speed.

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