Maths where it really counts

This summer, maths is being put to use to tackle real life problems, leaving us to make the most of the sun.

From getting the nation out of financial meltdown to making sure our money stays in our bank accounts, mathematics doesn't just deal in empty numbers. Imperial researchers explain how mathematics can be used to tackle real-life problems.

Finance

The Summer holidays are upon us and Brits are jetting off to warmer climates. In European countries, such as Spain and Greece, uncertain financial futures may not put off holidaymakers; but could be posing a problem for businesses and the global finance sector.

The economic downturn spread from Greece into Cyprus, via a process known as financial contagion. This theory suggests that, just as the cold virus passes from person to person, so economic uncertainty passes from one country to another.

According to Professor Damiano Brigo, Chair of Mathematical Finance, financial contagion, and how it occurs, is poorly understood even by people working in the finance industry. His research team is looking into exactly how shock results in one country's financial market can cause otherwise healthy neighbouring economies to fail.

"By learning how one country's finances directly affect another we hope to prevent a similar situation to the one in Cyprus from happening here in the UK."

Professor Brigo has now developed a new 'early warning' system for European debt.

The CEPIX index aims to help assess the financial stability of countries in Europe several days ahead. This will give governments and financial institutions the chance to prepare themselves for sudden downturns, or the effect of countries defaulting on major international debts.

The work has been carried out through Imperial Consultants, with Capco, a global financial services consultancy.

Fraud Detection

When you make a purchase on a card, fraud detecting systems build up a pattern of your spending

If you are lucky enough to get away on holiday, you can relax as long as the UK doesn't suffer a major financial crisis in your absence. Once abroad you may well encounter the work of another branch of mathematics; statisticians making sure that our money remains in our bank accounts where it's supposed to be.

Identity theft and credit card fraud costs people in the UK over £87 million each year. It can take up to two years to sort out the problems created by credit card fraud, such as reinstating your credit card rating and reputation.

Ever had a phone call from your bank with the cheerful message that someone is charging purchases to your card in Miami? Then there's half a second of panic before you realise that you are in fact in Miami, so that person is you. This call, whilst annoying, is a part of rigorous anti-fraud measures that banks employ, measures underpinned by statistics.

Statistician Professor David Hand and his colleagues are working on ways to make your money safer by enabling banks to tell the difference between transaction made on our credit and debit cards which are fraudulent and those that are not.

Every time you make a purchase on a card, fraud detecting systems build up a pattern of your spending. They track where and when a particular purchase was made, how much it cost and what currency was used to make the purchase

Statistical software then builds this and other information, such as the number of purchases you've made that day, into a model that can then spot any unusual card usage. This can then be flagged up to a human at the bank who can stop any further transactions and alert you to the problem.

"You might get a slightly irritating call from your bank every once in a while checking that it is indeed you who has made a specific transaction, but in the long run our work means that stolen credit cards can be detected and your money will stay in your bank account," Professor Hand explains.

Measuring progress

Statisticians say GDP is flawed, giving an incomplete picture of national wellbeing

So maths can help us to relax a bit more whilst on holiday and help make sure we have money left to spend whilst we're there. Statisticians are also there to help us once we've made it back to the UK. Professor Hand is currently working to find a new way to test how well our society is doing as a whole, by collaborating with the Office of National Statistics.

Since the end of World War II, governments, economists and the media have used Gross Domestic Product (GDP) as the primary indicator of how well a country is doing. However statisticians say it is flawed, giving an incomplete picture of 'national wellbeing'.

GDP is a tally of products and services that are bought or sold, but a better measure could take into account societal factors such as: quality of life, the state of the environment, sustainability, equality or individual wellbeing, explains Professor Hand.

"For instance, if you are stuck in a traffic jam on the way to the airport; the engine is running and you are consuming petrol, so you are contributing to GDP," he says.

"But sitting in the traffic jam isn't benefiting anybody. No products or services are being made and it certainly isn't making you any happier by getting you to the airport for your holiday any quicker. So when we are looking at how well a country is doing, GDP doesn't really cut it".

Professor Hand hopes that the new way of measuring well-being and progress will give us a more complete picture of how the country is doing and that this picture will help the Government to tailor economic policies and make better decisions for the UK. Improvements for society, the economy and the environment will follow, he says.

So while you're soaking up the sun on your Greek island holiday, paying for a meal with your credit card, or considering the state of your life back home, just remember how much if it is made possible thanks to the work of mathematicians.