IE 542 Investment Decision Modeling (Introduction to Mathematical Finance) Spring 2006

 Textbooks and Recommended Resources:

• Main Text: Arbitrage Theory in Continuous Time by T. Björk, Oxford University Press, second edition, 2004.
• Mathematics for Finance, An Introduction to Financial Engineering, by M Capinski and T. Zastawniak, Springer-Verlag, 2003 (Recommended only).

The course is intended as an introduction to the modern techniques of mathematical finance. We will closely follow the
book by Björk, by far the best pedagogical source available. No prerequisites, except some familiarity with calculus, linear algebra, probability and optimization, are assumed.

  Course Contents:



1.    Introduction and Problem Formulation (1 week)
   
2.    The Binomial Model (2 weeks)
   
3.    General One-Period Models (2 weeks)
   
4.    Stochastic Integrals (2 weeks), slides
   
5.     Differential Equations (2 weeks)
   
6.     Portfolio Dynamics (1 week)
   
7.     Arbitrage Pricing (2 weeks)
8.     Completeness and Hedging (1 week)
   
9.     Parity Relations and Delta Hedging (1 week)
   

Policy on Homework and Exams


• Your success in the course depends greatly on doing the homework exercises on your own.
  
• I will distribute the hw questions in class, usually on Mondays.
• Late hws will not be accepted.
• Cheating in homework and exams has serious consequences. Therefore, all work submitted should reflect your own effort.




Grading

 

 

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Homeworks:	40 %
Midterm Test:	30 % Date: April 4, 2006
Final:	30 % Date and Place: May 24, 2006, 9:40 am, EA-322

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