1

Towards an alternative model to teach financial mathematics

through of modeling and financial simulation with
spreadsheet


Arturo Garca Santilln *
Universidad Cristbal Coln, Campus Calasanz
Boca del Ro, Veracruz MEXICO
agarcias@aix.ucc.ver.mx agsposgrados@yahoo.com






Abstract
Nowadays the information and communication technologies (ICTs) have
contributed to the society and people across the world with an ample range of tools
that will allow simplifying the work: domestic, academic, businesses, government
and others. Its the specific case of teaching in the process of education-
learning, since the first degrees to even the post-degree. In this document we will
talk about teaching of the financial mathematics, like one of the ramifications of the
economic and management knowledge. We will describe the traditional education
process in a specific topic of the mathematics, debt restructuring and modeling
with equivalent-equation. From the theoretical explanation, we continue with the
design of a financial simulator programmed in a spreadsheet. After that, the result
will be verified and the designed software is validated.

Keywords: ICTs, Financial mathematics, Education-learning process, Educational
software.



1. - CURRENT SITUATION: Nowadays, the process in the education - learning of
mathematics, has being positively influenced by the communication and information
technologies, helping in its evolution and growth. However, these technologies are design,
administrated and executed by humans, which means, the hand of the human is still above
all of them. Before it, emerges one question, its really true that the use of communication
and information technologies have positively influenced in the education-learning of the
mathematics? Probably the first answer to that question could be yes, and actually believe
that the use of new information technologies has significantly promoted the education-
learning process. How to view this process as a first construct: (See figure 1)
The variables of influence have been determined: The process (education -
Learning), the media (the ICTs), the product (significant learning). In fact, we can see that
the model adjusts like the initial approach. However in the process of the traditional
2

education -learning, one of the main elements is the teacher, therefore this variable should
be considered in the model. Whit this consideration, now the model has to be reconsidered
as a new construct: (See figure 2)
In the traditional learning the teachers have become the main character, like the
basis from which the knowledge is generate. Certainly is the figure that has experience and
the knowledge, besides to be the guide for the student. This is, from the explanation and
activities that the teacher provides during the class, the student process, repeat and
develops it. But what happens before this process?, the student tends to refuse the
mathematics, so its necessary integrate new variables to the education-learning process
that could make it attractive to the student.
This element could be a spreadsheet from excel, computer tools in which its
possible to design series of calculus simulations, that allows to perform simulations whit
mathematical exercises. (Garcia et al 2007, Nies: 2007).

1.1. THE SIMULATION AND THE MODELING IN EDUCATION-LEARNING.
The simulation its hardware and software configuration in which, through some
algorithms of calculation, it can be reproduce the behavior of a particular physical process
or system. In that process the real situations are replaced by artificially designed ones,
from which it can be learn about actions, skills, habits and/or competitions, and then
transfer them in to situations of the real life whit the same effectiveness; in this activity not
only theoretical information is accumulated, its brought to the practice. The simulators are
constitute by a procedure, both for creation on concepts and construction of knowledge in
general, is done for the application of this new context in which, for some reasons, the
student cant access from the methodological context where the knowledge is developed.
In this digital era without a doubt the potential in the use of computers and software
in the educational field is recognize. The technological advances allow the students, trough
the computer simulation, face the learning situations that, for some physical and economics
restrictions, could be difficult to experiment in a natural environment or in a laboratory.
The simulation allows the construction of ideal scenarios, the manipulation of the
variables to observe the impact in certain phenomena, or just for give to the apprentice a
teaching resort for the replica of the learned theories. The influence of the simulation in the
educational process have a broad spectrum, the last is based in three main features:
1. its motivational part, because it allows the representation of study phenomena
that potentially capture the attention and interest of the student,
2. its provider part in the learning, because the student interacts with it, helping the
apprehension of knowledge trough the discovery and understanding of the phenomena,
system or simulated process, finally
3. The reinforce part, is the one that allows the apprentice the application of the
acquired knowledge, and hence the generalization of it.
The simulation as a didactic strategy allows to access to the construction of the
model in a real situation that makes easy to experiment and make the knowledge by the
student. The use of a simulation in the educational process, according to Abello, Lpez and
Sara (2003), allows training in an environment close to reality, but controlled and secure
about some difficult, expensive and hazardous aspects in reality that could be hard to
concretize, in which is possible to repeat the experience many times as necessary, at a
minimum cost. Also the simulation in the educational process allows the alteration of
3

time, whit discretion, able to take training in making decisions in real time that would carry
on whit a certain action, without waiting the time really moves. (See figure 3)
On the other hand, it also makes possible the use of a scenario whit some consistent
hypothesis on the conditions in which the real action or crisis develops eventually. Other of
the benefits of the refer simulation according to the quoted authors, they are related whit
the use of an image that creates a graphic view about the situation with which they find
themselves, if the expressed circumstances are given in a certain scenario, as well as study
and to experiment the complex interactions that occur inside the system or organization
that is under pressure. On the same way, the simulation as a tool in the educational process
makes easy to create changes and alterations in the simulation model and to observe the
behavior of the users and the effects on these causes, as well as practice on the procedures
in force and to experiment whit new policies and rules of decision. Whit this arguments, it
is now necessary to base theoretical and empirical this study.

1.2. - THEORETICAL FRAMEWORK: Goldenberg (2003) point out that, nowadays
the trend that has occurred with greater force in education, is the one that is present in
mathematics teaching and in the education process, using the information technologies
(ICTs). Inside this field, the use of the spreadsheet in computers has enabled a major step
forward in this topic.
The design of mathematical spreadsheet models began in 1979, when Dan Bricklin
created VisiCalc, using an Apple II computer. This fourth generation software allowed
the development of financial projections automatically, only whit the manipulation of some
values. Based on this, the management and business sector had been favored in time and
cost, because now the financial decisions are based in the determination of the best
alternative that a financial simulation produces.
The success in the use of the spreadsheet, is based in the experience of the
professionals who handle this software, but besides that, they can know the deep problems
of the company, whit this, they can be solved through the mathematics.
Moursund (2003) say that in real life exists a striking contrast in the field of
education, it means, the introduction of the ICTs in the education-learning in the basic and
medium level, focuses more in what the tool can develop instead of what it can solve. He
also noted, in the case of solve management problems, in the exact and social sciences, and
other fields of knowledge, the spreadsheet provides a good environment for modeling this
problems.
Lewis (2007) reveals the importance of using the spreadsheet and the commitment
that the teachers must promote the use of it, because it could contribute something
significantly to the education-learning process, like in the mathematics subject. He
reinforces this argument by saying that the spreadsheet is a powerful tool for learning and
developing the student skills that take them to:
a).-Organize data (sort, categorize, generalize, compare and highlight the key
elements), b).- Perform different types of graphical interpretation and analysis, c).-
Use graphics to reinforce the concept of percentage, d).- Use specific visual
elements with a view to exploring abstract mathematical concepts (visual and
spatial intelligence), e).- Discover patterns, f).- Understand basic math concepts
such as counting, addition and subtraction, g).- Stimulate the mental abilities in the
4

superior order by using formulas for conditional answer questions like "if ... Then "
and finally ---- h).- Solving problems and using formulas to manipulate numbers,
exploring how and what formulas can be used in a certain problem and how to
change the variables that affect the outcome. " (Lewis Op. Cit)
In the figure 4, we can see all has been described above, but also shows the process
of logical functions generated by the use of the spreadsheet; this could encourage the
design of the planning of the sessions whit the application of the ICTs. Namely, this is the
most important action between the teacher that gives the traditional session and the
migration to the use of the spreadsheet in the teaching process of the mathematics. (See
figure 4).
Finally we can include the history of mathematics in the classroom, like say Fauvel
(1991), Clinard (1993), Bidwell (1993), Murugan (1995), Barbin (1997), Furinghetti
(1997), Ernest (1998) and Jonasse (1998), as a methodological tool that could be help to
learning.
1.3.- THE EXCEL PLATFORM AS A TOOL IN THE LEARNING AND THE
METHODOLOGICAL DEVELOPMENT OF THE TOPIC: The use of the ICTs, and
the benefit, it is given from the development of a session plan about an specific topic of the
financial mathematics. Before that, it is programmed in excel language, beyond of making
easy the explanation of the same mathematical topic that the session of education learning
describes, also is going to constitute the design of a simulator that helps as a tool (as a
product for the session).This fact pretend to prove, that being the mathematics one of the
sciences that have more rejection among the students, in the education -learning process,
the use of the ICTs could be an influential element in the taste and acceptance of the
mathematics by the student that are being trained in the classrooms.

1.4. - DEVELOPING A THEME: How a theme is visualized in a traditional
session: Equivalent equations model (Traditional session). Valuation of debt: Whereas
most of the amount to defeat
)
365
1 (
..... ..........
)
365
1 (
1 1
1
n n
n
D
t i
Do
t i
Do
V
o
+
+
+
=

(1)

With a notation of the compound interest, include capitalizations:
Valuation of debt: Considering most of the amount to defeat


m
D
t i
Do
V
o
)
365
1 (
1 1
1
+
=
(2)



5

Valuation of debt: Considering most of the amount to defeat

m n n
n
m
D
t i
Do
t i
Do
V
o
)
365
1 (
..... ..........
)
365
1 (
1 1
1
+
+
+
=

(3)

Following the generalization model, its necessary to display a timeline for establishing
moments: prior to the focal date (pfd), the focal date (fd), and subsequent to the focal date
(sfd).
Timeline Value of the Original Scheme:
o
D
V

















The elements for determination the value of the new scheme: V
D
are: the interest
rates or discount in the renegotiation of the pacts i
1
in the time t
1
t
n
, the obligation
before the focal date S
1aff (
from 1 to n), in the focal date S
ff
and the obligations after the
focal date S
1pff (
from 1 to n)
The new scheme, from the renegotiation whit Y equal payments on different
dates, both prior to the focal date , in the focal date and after the focal date, they can be
seen in a timeline:

Timeline Value of the New Scheme:
o
D
V












The worth of the debt
will expire at a certain
time to come, in the
view of the focal date
Date that has
been agreed to
negotiate debt
Agreed date as focal
date
Expiration date
Days elapsed between the expiration
date and the focal date
Expiration
Focal date
Agreed to
negotiate the debt
Before the focal date
July
After the focal date
August
Sept.
1
2
3 5 6
7
In the focal date
4
6

The expression of the mathematical model of the New Debt, whit the Simple Interest
accurate, is follows like this:

= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n n n
n
ff
n n
n
aff
n
D
t i
S
t i
S
S
t i
S
t i
S V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
....
)
365
1 (
365
1 .....
365
1
(4)
Its replaced:
aff
S
1

ff
S and
pff
S
1
by X

= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n n n
n
ff
n n
n
aff
n
D
t i
X
t i
X
X
t i
X
t i
X V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
....
)
365
1 (
365
1 .....
365
1
(5)

Its replaced: :
aff
X
1 ff
X y
pff
X
1
by the unity (1) to obtain the coefficients


= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n n n
n
ff
n n
n
aff
n
D
t i t i
t i t i
V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
1
....
)
365
1 (
1
1
365
1 1 .....
365
1 1
(6)

To reduce the expression of the mathematical model, we substitute the expression
(1+it/365) of the accumulation factor by Fa resulting in the next expression

( ) ( )

= =
+ + + + =
pff
n
n
ff n
aff
n
D
Fa Fa
Fa Fa V
pff pff
aff n
0
1
0
1
) (
1
....
) (
1
1 1 ..... 1 (7)

If we identified the payments coefficients: before the focal date, in the focal date and after
the focal date like: C
aff,
C
ff,
C
pff


We obtained the next expression:

= =
+ + =
aff
n
pff
n
pff ff aff D
C C C Y V
n
0 0
) (
(8)

Replacing, now we get the model expression that allows obtaining the amount of each pay:


= =
+
+
=
aff
n
pff
n
pff ff aff
D
C C C
V
Y
n
0 0
(9)

Where:
Y = Value of each pay,
V
D
=Value of the new debt previously valued,
C
aff
. Sum of the payments coefficients in the prior focal date,
Cff:

Payments coefficients in the focal date.
C
pff.
Sum of the payments coefficients after the focal date.


7

The expression of the mathematical model of the New Debt, with Compounded Interests
accurate, is as follows:


= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n
m n n
n
m
ff
m
n n
n
m
aff
n
D
t i
S
t i
S
S
t i
S
t i
S V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
....
)
365
1 (
365
1 .....
365
1
(10)

To substitute:
aff
S
1

ff
S
and
pff
S
1
by X

= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n
m n n
n
m
ff
m
n n
n
m
aff
n
D
t i
X
t i
X
X
t i
X
t i
X V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
....
)
365
1 (
365
1 .....
365
1
(11)

Again is substituted:
aff
X
1 ff
X
y
pff
X
1
by the unity to obtain the coefficients


= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n n n
n
ff
n n
n
aff
n
D
t i t i
t i t i
V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
1
....
)
365
1 (
1
1
365
1 1 .....
365
1 1
(12)

To reduce the expression of the mathematical model, we substitute the expression
(1+it/365)
m
the accumulation factor for (Fa)
m
resulting in the next expression:

( ) ( )

= =
+ + + + =
pff
n
m
n
m
ff
m
aff n
m
aff
n
D
Fa Fa
Fa Fa V
pff pff
aff n
0
1
0
1
) (
1
....
) (
1
1 1 ..... 1
(13)

Again if we identified the payments coefficients: before the focal date, in the focal date and
after the focal date like: C
aff,
C
ff,
C
pff


We obtain the expression:

= =
+ + =
aff
n
pff
n
pff ff aff D
C C C Y V
n
0 0
) (
(14)


Substituting, we obtain the model expression that allows getting the amount of each pay:


= =
+
+
=
aff
n
pff
n
pff ff aff
D
C C C
V
Y
n
0 0
(15)

Where:
Y = Value of each pay,
V
D
= Value of the new debt previously valued,
C
aff
. = Sum of the payments coefficients in the prior focal date,
Cff
=
Payments coefficients in the focal date.
C
pff.
=Sum of the payments coefficients after the focal date.
8

1.5. PROGRAMING IN EXCEL SPREADSHEET: After explained and practiced each
subject of Financial Mathematics, the following step now is that the student designs his
groups from the formulas used in the subject, being in this case equivalent equations with
simple interest and compound interest. The cover is designed and inserts the spreadsheets
for any formula that we will use.


PROCESS OF Education Learning
Step 1: The modalities settle down (See images to end this paper)
Step 2: The programming in spreadsheet Excel to any formula. For example:


= =
+
+
+
+ + |
.
|

\
|
+ + |
.
|

\
|
+ =
pff
n
m n n
n
m
ff
m
n n
n
m
aff
n
D
t i
X
t i
X
X
t i
X
t i
X V
pff
pff
aff n
0 1 1
1
1 1
0
1
)
365
1 (
....
)
365
1 (
365
1 .....
365
1


=IF(D7=1,(1*POWER(1+(K13*(D7/12)),D7)),0)+IF(F7=1,(1*POWER(1+(K13*(F7/12)),F7))
,0)+IF(H7=1,(1*POWER(1+(K13*(H7/12)),H7)),0)+IF(J7=1,(1*POWER(1+(K13*(J7/12)),J7
)),0)+IF(L7=1,(1*POWER(1+(K13*(L7/12)),L7)),0)+K19+IF(D11=1,(1/POWER(1+(D11/12)
),D7)),0)+IF(F11=1,(1/POWER(1+(F11/12)),F7)),0)+IF(H11=1,(1/POWER(1+(H11/12)),H7))
,0)+IF(J11=1,(1/POWER(1+(J11/12)),J7)),0)+IF(L11=1,(1/POWER(1+(L11/12)),L7)),0)+

1.6. CONCLUSION: A significant trend in which the teaching of mathematics concerns,
its trough the use of the ICTs. This is, the computing platforms that have opened new ways
in the education, been the specific case, in the teaching of the mathematics. some studies
give us evidence, that allows to say , that the population nowadays its getting better
results, both in understanding, and in the skills of developing the mathematical functions,
whit the use of the spreadsheet and the computing technologies itself, all of that compared
whit the student that carries out the education -learning process in the traditional system.
1

The uses of the ICTs have helped the manipulation of the variables in the
mathematical information or data that are used for the development of some formula or
mathematical model. The graphic representation, the modeling and other qualities of this
application, is what the ICTs offer for the developing of the exercises, just like we know,
some practical cases of mathematics turns to be very complex to solver in a manual way,
using only a paper and a pencil.
In the same way, is necessary to brake paradigms and old customs in the education
learning process, its been recommendable that the teacher design his session plan
supported by the computing technologies, being the specific case, the introduction of the

1 SRI International, A Review of Research on Computer-Based Tools (Spreadsheets, Graphing, Data Analysis, and Probability Tools),
with an Annotated Bibliography www.sri.com/policy/ctl/assets/images/Tools_review.pdf.

9

spreadsheet. In the base of the proposed model (Figure 1 and 2) show variables: the
education learning process, the tool (the use of the ICTs, specifically the spreadsheet) and
the product (the significant learning). In both cases the student is the subject, but the b)
model integrated the teacher as an important variable.
In the last one, the character trough which, the migration generates from the
traditional education system of the mathematics, towards the education learning system
based in the ICTs application, being the specific case the use of the spreadsheet in excel.

1.7 Figures and tables




10





11







12







ACKNOWLEDGEMENT
The authors is very grateful to the Cristbal Coln University for all helping and support


13

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