MATH 423 - Mathematics of Finance
Winter 2014, Section 002
Instruction Mode: Section 002 is (see other Sections below)
Subject: Mathematics (MATH)
Department: LSA Mathematics
See additional student enrollment and course instructor information to guide you in your decision making.


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
001 (LEC)
 In Person
TuTh 8:30AM - 10:00AM
Note: Please add your name to the wait list. Priority is given to Actuarial and Financial Math majors
002 (LEC)
 In Person
TuTh 10:00AM - 11:30AM
004 (LEC)
 In Person
TuTh 1:00PM - 2:30PM
Note: Please add your name to the waitlist. Priority is given to Actuarial and Financial Math majors

Textbooks/Other Materials

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Syllabi are available to current LSA students. IMPORTANT: These syllabi are provided to give students a general idea about the courses, as offered by LSA departments and programs in prior academic terms. The syllabi do not necessarily reflect the assignments, sequence of course materials, and/or course expectations that the faculty and departments/programs have for these same courses in the current and/or future terms.

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