MAS3091 Financial Mathematics (NJTech)

Semester 2, 2017/18 5 Credits
Lecturer: Dr Moty Katzman Reading List
Aims Full Syllabus

The discovery of the Capital Asset Pricing Model by William Sharpe in the 1960's and the Black-Scholes option pricing formula a decade later mark the beginning of a very fruitful interaction between mathematics and finance. The latter obtained new powerful analytical tools while the former saw its knowledge applied in new and surprising ways. (A key result used in the derivation of the Black-Scholes formula, Ito's Lemma, was first applied to guide missiles to their targets; hence the title `rocket science' applied to financial mathematics). This course describes the mathematical ideas behind these developments together with their applications in modern finance.

There are no prerequisites for this module.
No other modules have this module as a prerequisite.


Outline syllabus

  • Introduction, arbitrage, forward and futures contracts
  • Options, binomial trees, risk-neutral valuation
  • Brownian motion and share prices, the Black-Scholes analysis
  • Portfolio theory, the Capital Asset Pricing Model.



Aims

  • To introduce students to the mathematical ideas and methods used in finance.
  • To familiarise students with financial instruments such as shares, bonds, forward contracts, futures and options.
  • To familiarise students with the notion of arbitrage and the notion of no-arbitrage pricing.
  • To introduce the binomial tree and geometric Brownian motion models for stock prices.
  • To familiarise students with the Black-Scholes option pricing method.
  • To introduce the Capital Asset Pricing Model.

32 lectures, 32 tutorials

Full syllabus

  • Interest rates, bonds and yield curves. (2 lectures)
  • Forward and Futures contracts. (3 lectures)
  • Options. (3 lectures)
  • Binomial trees and risk neutral valuation. (2 lectures)
  • Review of probability. (1 lecture)
  • The stochastic process followed by stock prices. (2 lectures)
  • The Black-Scholes pricing formulas. (2 lectures)
  • Portfolio theory. (2 lectures)
  • The Capital Asset Pricing Model. (3 lectures)

Reading list

Type Author(s) Title Library Blackwells Amazon
B Capinski and Zastawniak Mathematics for Finance: An Introduction to Financial Engineering Blackwells Amazon
B Hull Options, futures and other derivatives Blackwells Amazon
B Sharpe Portfolio theory and capital markets Blackwells Amazon

(A = essential, B = recommended, C = background.)

Most books on reading lists should also be available from the Blackwells shop at Jessop West.