Introduction to Mathematical Finance

EMEC032S6

Summer Term
Full-time and Part-time Year 2

Lecturer: Stephen Wright

Aims

The course aims to familiarise students with some of the core mathematical tools of modern financial economics. The lectures aim to promote the ability to think in a structured framework, and clarify the importance of formal arguments.

An important aim of the course is to prepare the students for applying to a master’s degree in finance.

Objectives

The students should be able to demonstrate that they:

• Can solve the intertemporal optimization and portfolio choice problem faced by consumers under certainty and uncertainty
• Can derive the capital asset pricing relation from first principles
• Can derive the Black-Scholes option pricing formula.
• Can apply the concept of no arbitrage in a range of contexts

Teaching Arrangements

The course is taught over 5 weeks, two nights per week, with one three hour lecture, and a 90 minute lecture followed by problem class on the other night.

Course Assessment

The grade for this course is determined through a three-hour examination in June.

Textbooks

• Thomas E Copeland, J Fred Weston, Kuldeep Shastri, Financial Theory and Corporate Policy, Addison Wesley (earlier editions, without Shastri as co-author, are also ok).

You may also find one other text very useful

• Hull, J, Options, Futures and Other Derivative Securities, Prentice-Hall

While we shall only cover a relatively small proportion of the material in these texts, they should both also prove very useful at MSc level.

In general handouts will only provide for material not covered in the textbook.