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Abstract

We are all aware of the tremendous upheaval that has taken place in the financial markets over the last year. Well established banks and brokerage house have failed and had to be liquidated or merged. Is it possible to model the financial markets to help understand the relationship; between the most dynamic variables, Gold, The Dow Jones Industrial Average.

Using mathematics to look for correlations of sets of these data has been performed by mathematicians. By using Microsoft Excel to examine Gold and the Dow Jones Industrial Average we would like to find a method that would enable us to simplify and see the fluctuations of the variables.

Introduction

We teach in the Electronic Engineering Technology department (“EET”), at TCI the College of Technology a two year college located in New York City. Our 4000 + students are 50% inner city and 50% foreign. It is one of the most diverse populations in NYC with over 100 different languages spoken. The only place more diverse than TCI is the United Nations.

The mathematic courses concentrate on applied math which is necessary for our EET students. Often the challenge exists of teaching students to make mathematical models of physical systems. We feel that the value of teaching students to analyze large quantities of data is a valid objective.

Data Sources

The two variables that we chose to start our instruction are the Dow Jones Industrial Average, (“DJ”) and the price of gold. The first challenge is to find the data. The next step is to formulate a model and then test it over the time periods listed above.

The source of data for the Dow Jones is located at Dow Jones, Wren Research1. We selected the yearly closing price on the first day of each year.

We researched and found that the United States was on the Gold Standard and the price of Gold was $20.67 until 1934. The source of data for Gold is R.W.Jastram (1977), London Bullion Market Association2. The US dollar was backed by gold and the strongest currency in the world. In 1934 the country was in the midst of a depression and President Roosevelt asked congress to increase the gold assets in Fort Knox by raising the value of an ounce of gold from $20.67 to $35. The price of gold was pegged at $35 per ounce over this period. In 1967 the United States went off the Gold Standard and the US dollar is no longer backed by gold. The price of gold relative to the dollar started to increase.

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Pariser, B., & Meherji, C. (2010, June), The Mathematics Of Financial Markets Paper presented at 2010 Annual Conference & Exposition, Louisville, Kentucky. 10.18260/1-2--15698