Spring 2006

MATH 4490 – Mathematics of Financial Derivatives

Instructor

Dr. Anda Gadidov

Office

Science Building Room 529

Phone

(770)423-6098, e-mail: agadidov@kennesaw.edu
All emails should originate from the student’s netid.student.kennesaw.edu account or from their WebCT account. Our e-mail system allows for email filtering software that blocks certain domains, one of which could be your commercial email provider.  For more information on setup and use of your email account, go to https://students.kennesaw.edu/email.

Office hours

MW 12:30 – 2:00

Class meets

MW 5:00 – 6:15 in CL 1005

Text

A course in Derivatives Securities, Introduction to Theory and Computation by Kerry Back, (Springer, 2005, ISBN -10- 3-540-25373-4)

Prerequisites

Math 3332 Probability and Statistics

Description

Finance is one of the fastest growing areas in the modern banking and corporate world. This, together with the sophistication of modern financial products, provides a rapidly growing impetus for new mathematical models and modern mathematical methods. This text is an introduction to the mathematical background of financial derivatives from an applied point of view. The material covered combines introduction to option theory, basic stochastic calculus, pricing options using Black-Scholes formulae, introduction to partial differential equations, numerical methods for solving partial differential equations. This course will be very valuable to students preparing for the second actuarial examination. This course can satisfy the requirements for a Capstone experience.

Learning 
outcomes

A student completing this course should be able to

1. Understand basic financial terminology.

2. Understand the mechanism of option pricing.

3. Understand the basic Binomial Model.

4. Derive the price of the option in the Binomial model.

5. Understand the basic ingredients of stochastic calculus.

6. Apply calculus and probability techniques to compute simple stochastic integrals.

7. Understand the Black-Scholes model of pricing an option.

8. Understand and use the Black-Scholes formulae.

9. Apply the theory to various practical problems and/or projects.

10. Use computer software to apply in practical problems and projects.

11. Gain appreciation for the wide array of applications of mathematics.

Topic outline

An Introduction to Options and Markets.

The Binomial Model.

Introduction to Stochastic calculus. 
The Black-Scholes Model.

Solving the Black-Scholes Equations. Introduction to Partial Differential Equations.
The Black-Scholes Formulae.

Application of Black-Scholes Formulae to pricing options

Introduction to numerical methods for pricing derivatives.

Schedule of activities and

Grading

Class will meet twice a week. Homework and reading assignments will be given regularly. Homework will be graded for correctness and accuracy of mathematical language and notation. In the second part of the semester the class will mainly focus on discussion and preparation of projects and presentations. Depending on the student’s background forte and interests the projects can focus on mathematical techniques or programming skills. The course is not intended to offer deep coverage in just one topic but to open avenues for various possible developments.

Check my homepage http://math.kennesaw.edu/~agadidov for updates on the course. 

Your grade will be based on your performance on homework assignments, class participation, performance on tests and projects. There will be two exams during the semester. Each exam will count 20% towards the grade, homework 20%, class participation 15%, projects 25%.

Class participation will be judged based on discussions of reading assignments or presentations of homework problems. A list of possible projects will be given and students will be able to work in groups.

Class attendance is essential.

Grades will be assigned as follows:

Class average	Grade
90% and above	A
80%-89%	B
70%-79%	C
60%-69%	D
below 60%	F

Academic
misconduct

Every KSU student is responsible for upholding the provisions of the Student Code of Conduct,
as published in the Undergraduate and Graduate Catalogs. Section II of the Student Code of
Conduct addresses the University’ s policy on academic honesty, including provisions regarding 
plagiarism and cheating, unauthorized access to University materials, misrepresentation/falsification of University records or academic work, malicious removal, retention, or destruction of library materials, malicious/intentional misuse of computer facilities and/or services, and misuse of student identification cards. Incidents of alleged academic misconduct will be handled through the established procedures of the University Judiciary Program, which includes either an informal resolution by a faculty member, resulting in a grade adjustment, or a formal hearing procedure, which may subject a student to the Code of Conduct’s minimum one semester suspension requirement.

Withdrawal
policy

Students choosing to withdraw from this course without academic penalty must do so by March 3, 2006.  Withdrawal forms can be obtained from the Office of the Registrar.  The completed form must be approved by the Registrar.  A student ceasing to attend class and completing course requirements will be assigned a failing grade if official withdrawal has not been completed.  There is a new University policy on the total number of withdrawals a student may have (see fall 2005 schedule p. 37).

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