Financial Mathematics - I
Department of Mathematical Sciences
WORCESTER POLYTECHNIC INSTITUTE
MA 571, Financial Mathematics I, Fall 2003
Instructor:
B. Doytchinov
Office: SH105D
Office hours: TBA
e-mail:bogdand@wpi.edu
TEXT
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J.Hull, Options, Futures, and Other Derivatives, Prenice Hall,
Fifth edition. ISBN 0-13-009056-5
There will be also some theoretical notes covering some material not
represented in the book.
CLASSES
Lectures are held in SH202 , 5:30-8:20pm on Thursdays.
The first lecture will be on Thursday, September 4, 2003.
COURSE CONTENTS
This course starts with discrete-time financial models, giving an introduction
to arbitrage-based pricing of derivative securities and their uses for hedging
and risk management. The key probabilistic concepts of conditional expectation,
Markov processes, martingales and change of measure are all introduced within
this framework. The course then makes a transition to continuous-time models
by a limit argument. Topics include:
- securities markets, futures,options, swaps, and other derivatives;
- arbitrage and risk-neutral pricing;
- binomial trees, martingales, stochastic difference equations;
- Black-Scholes formula and partial differential equation;
- pricing of American options, convertible bonds, options on dividend
paying stock and on futures;
- sensitivity measures (the ``greeks''), implied and estimated volatilities;
- use of derivatives for hedging and risk management;
- Real Options in capital investment appraisal.
GRADING POLICY
There will be two exams (one mid-term, and one final). Also, each week
there will be a homework assigned, due at the following lecture.
40% of the grade come from the Homework,
30% of the grade come from the Midterm Exam,
30% of the grade come from the Final Exam
Financial Mathematics - I
Send me mail:
bogdand@wpi.edu
