What Is Quantitative Accounting?

Quantitative accounting is the field of applied mathematics that is directly concerned with using existing monetary values to derive other values. Most forms of applied mathematics are used as predictive processes to analyze or understand data trends. Quantitative accounting is unconcerned with any value other than the one supplied; it does not predict or spot trends. The field takes existing known values, for instance the price of a stock at a specific time, and uses that value to derive other values associated with it. This field goes by many names: quantitative finances and mathematical finances are two of the common alternatives.

The field of quantitative accounting was in its infancy in the 1980s and became a more common area of study in the early 1990s. Speculative and money-driven strategies were common in the 80s and it had a very negative overall impact on the economies of most developed nations. Using quantitative measures to determine fair and reasonable methods of investing and deriving value emerged as a superior method of maintaining economic stability. This served most investors well until the mid-2000s, where the over-analyzing of simple data became one of the major factors in a worldwide recession.

The main focus of this field is in the analyzing of existing data for the purposes of finding correlating information. In more simple terms, rather than being concerned with why any number is what it is, the field simply takes existing information in and sends new information out. The new information is related to the data given in terms of time and scope. If the old data described something as it existed at 3:18 a.m., the new data will describe something related at 3:18 a.m.

This is the difference between quantitative accounting and quantitative economics. An economist would take the given information and use it to look for patterns. For instance, the economist may take the information along with that same information for the last several weeks and work up a trend analysis. This would hint to potential investors the likelihood of a value going up or down in coming weeks.

There are two main focuses within quantitative accounting: portfolio management and derivative pricing. In both cases, the process is the same. The accountant is given information related to the derivative or portfolio. Using the available information, the accountant determines the overall value of any derived good or section of the portfolio at the time of the original numbers' existence. The origin of the original data need not be based in reality; a speculative investor may give a likely future value to determine the related information at a future time.