Class Mo, We, Fr 11-11:50 CA209
P. Greim
Capers 221 C, Tel. 9535035, peter.greim@citadel.edu;
http://macs.citadel.edu/~greimp
Office hours are posted at my door and at my class schedule web page. You can read it as long as you are using a Citadel terminal. The class schedule will give you an idea which times might be available if you need to make an appointment.
Text:
The Mathematics of Finance - Modeling and Hedging
by Joseph Stampfli
and Victor Goodman (Brooks/Cole)
ISBN 0-534-37776-9
to be supplemented with handouts
Covered material: Chapters 1-7
Course description
This is a modeling course. We will
apply very simple mathematics (linear equations in one or two unknowns,
exponential growth, binomial distributions) to the prices of stocks and
options (more generally: derivatives). Then, gradually, the models become
more complex and the mathematics more advanced, eventually involving stochastic
processes, especially Brownian motion.
The development of the models
is a dynamic process: basic features of stock or derivative pricing lead
to mathematical equations; the resulting solutions are interpreted in the
underlying market situation, and these interpretations may lead to the
elimination of some solutions or to the introduction of further conditions
in the mathematical model.
Each of the
models is applied to actual stock market data, using spreadsheets for the
computations and for market simulations.
Prerequisites
Multi-variable calculus, probability distributions. Partial differential equations: useful, but not required..
Grades
are based on the final, 3 tests, and homework assignments, including labs. The tests combined count 50%, homework 25%, and the final exam counts 25%. You'll receive 0.5, resp. 1.25 percentage points extra credit for each correctly solved problem of the week or problem of the month. (See Prof. Trautman's web page http://155.225.10.64/potw/potw.htm, and look out for weekly, resp. monthly, announcements on the classroom bulletin boards.) I will follow the usual 10% per grade scheme and not grade "on a curve". However, if after grading a test the statistics show a particularly bad performance of the whole class at one problem, I may adjust that problem's weight within the whole test.
You can check your standing in the course in a file on the Novell network under CitNov Files: \Groups\Departments\Macs\Private\Greim\your_score\490\490scores-(date).xls .You'll need to know your code number to identify your record. It will be on your first returned assignment.
When you work problems, first try to do them by yourself. After that, whether you succeed or not, you may discuss them with others. You will learn from talking about mathematics. However, do not copy homework from others. I want you to understand a problem solution (either through own research or discussion) and then formulate it in your own words. Discussing a problem solution with a classmate, understanding it, and then formulating it in your own words is allowed. Copying a solution from others is not.
Occasionally I will let you do part of a test as take-home. In that case you are completely on your own - almost. I am the only person with whom you may discuss a test problem before turning it in.
Help
is available: you may work with other students, see me after class, during office hours, or make an appointment (or just drop by my office, taking a chance that I may be busy).
One last advice: when you are getting behind (or can't even get started right) - let me know right away. I'll go out of my way to help you if you try. Your grade will be based on your success - not on your effort. However, your effort will determine how much I help.
Tentative Syllabus:
Chapter 1, Stocks and derivatives:
5 days
Chapter 2, Discrete, one-step derivative
pricing: 5 days
Test 1
Chapter 3 (&4), Tree models for
stocks and options: 10 days
Test 2
Chapter 5, Continuous models and the
Black-Scholes formula: 10 days
Chapter 6, Analytic approach to Black-Scholes:
3 days
Test 3
Chapter 7, Hedging: 5 days