Math 423 - Mathematics of Finance
Page Updated: 3/19/2002
- Prerequisites: A solid background in probability theory at the 400
level, math 425 or equivalent.
- Credit: 3 credit hours
- Required Text: Options, Futures and Other Derivatives by
Hull, fourth edition, Prentice Hall 1999.
- Background and Goals: This course is an introduction to the
mathematical models used in finance and economics with particular emphasis on
models for pricing derivative instruments such as options and futures. The goal
is to understand how the models derive from basic principles of economics, and
to provide the necessary mathematical tools for their analysis.
A solid background in basic probability theory is necessary.
- Contents: (a) Forwards and Futures, Hedging using Futures, Bills and
Bonds, Swaps, Perfect Hedges. (b) Options-European and American, Trading
Strategies, Put-Call Parity, Black-Scholes formula. (c) Volatility, methods for
estimating volatility-exponential, GARCH, maximum likelihood. (d) Dynamic
Hedging, stop-loss, Black-Scholes, the Greek letters. (e) Other Options.
- Grading: The grade for the course will be determined from
performances on 8 quizzes, a midterm and a final exam. There will be 8 homework
assignments. Each quiz will consist of a slightly modified homework problem.
8 quizzes= 8x10=80 points
midterm= 60 points
final= 80 points
Total= 220 points
Exam Schedule:
- Winter 2002 midterm exam: Wednesday, March 13th, 6.00-7.30 pm,
Dennison 455.
- Winter 2002 final exam: Monday April 22, 1.30-3.30 pm, Dennison 413.
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