Instructor
John E.
McCarthy
Class
MWF 3.00-4.00 in 111 Cupples I
Office
105 Cupples I
Office Hours M
2:00-3:00, Th 3:00-4:00, F: 4:00-4:45.
Phone
935-6753
Text The Mathematics of Financial Derivatives P. Wilmott, S. Howison and J. DeWynne
Exams There will be two exams in the course:
1) Exam 1 In class, Friday,
March
5
2) Exam 2 Final exam, on
Thursday, May
6, 6-8 pm
Prerequisites
Math 309 and 318.
Content
The main purpose of this course is to understand how options should be priced. We will study in particular the Black-Scholes equation, which gives a method for pricing options if one assumes that the underlying asset price has a Gaussian white noise component superimposed on a linear trend.
Setting up the Black-Scholes equation requires some understaing of stochastic processes, which we shall develop. Solving it is essentially the same as solving the partial differential equation called the Heat equation. We shall also develop the theory necessary to solve the equation.
Basis for Grading
The midterm and home work will each be 20% of your grade,
the final will be 60%.
I expect you to come to class every day, and to participate in class discussions. I also expect you to stay abreast of the material we are covering, and may call on you at any time to answer a question.
Bibliography
The following is a brief bibliography you may find useful.
J. Stampfli and V. Goodman The Mathematics of Finance: Modeling and Hedging
S.M. Ross An elementary introduction to mathematical finance:
Options and other topics
J.C. Hull Options, futures and other derivatives