MATH 423 - Mathematics of Finance
Section: 101
Term: SP 2009
Subject: Mathematics (MATH)
Department: LSA Mathematics
Requirements & Distribution:
Waitlist Capacity:
Advisory Prerequisites:
MATH 217 and 425; EECS 183 or equivalent.
This course counts toward the 60 credits of math/science required for a Bachelor of Science degree.
May not be repeated for credit.
Primary Instructor:

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 reflect observed market features, and to provide the necessary mathematical tools for their analysis and implementation. The course will introduce the stochastic processes used for modeling particular financial instruments. However, the students are expected to have a solid background in basic probability theory.

Specific Topics

  1. Review of basic probability.
  2. The one-period binomial model of stock prices used to price futures.
  3. Arbitrage, equivalent portfolios, and risk-neutral valuation.
  4. Multiperiod binomial model.
  5. Options and options markets; pricing options with the binomial model.
  6. Early exercise feature (American options).
  7. Trading strategies; hedging risk.
  8. Introduction to stochastic processes in discrete time. Random walks.
  9. Markov property, martingales, binomial trees.
  10. Continuous-time stochastic processes. Brownian motion.
  11. Black-Scholes analysis, partial differential equation, and formula.
  12. Numerical methods and calibration of models.
  13. Interest-rate derivatives and the yield curve.
  14. Limitations of existing models. Extensions of Black-Scholes.

MATH 423 - Mathematics of Finance
Schedule Listing
101 (LEC)
TuTh 12:00PM - 3:00PM
NOTE: Data maintained by department in Wolverine Access. If no textbooks are listed below, check with the department.

ISBN: 9781852333300
Mathematics for finance : an introduction to financial engineering, Author: Marek Capinski and Tomasz Zastawniak., Publisher: Springer 2. printin 2003
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