Last update: 13/05/2009 17503- TMMF- MATHEMATICAL THEORY OF FINANCIAL MARKETS

Abstract

The aim of the course is to introduce students to mathematical methods for evaluating modern financial products. The course is composed of three different parts: the first is devoted to describing financial products and their evaluation using arbitrage; the second part provides the mathematical foundations for discrete pprocesses, and finally the third part is devoted to continuous processes and concludes with an introduction to the Black-Scholes environment. It is therefore necessary to introduce some basic notions about stochastic differential calculus. * Students learn the mathematical basis for modelling financial markets. * Students acquire knowledge about model limitations. * Students learn the concept of arbitrage and its applications. * Students acquire notions of stochastic differential calculus. * Students understand the foundation and deduction of the Black-Scholes formula. * Students learn how to evaluate simple financial products. Skills to be learned * Learn how to obtain theoretical prices of simple financial products such as European call options. * Learn the use of financial options for hedging and speculation. * Learn how to solve simple stochastic differential equations. * The ability to use different probability measures and to perform simulations with binomial trees. * Be prepared to start work in financial institutions