Mathematics 16:643:632 Mathematical Finance in Industry
Schedule
The course is offered during the Fall semester.- Class meeting dates: Please visit the University's academic calendar.
- Schedule and Instructor: Please visit the University's schedule of classes for the instructor, time, and room.
- Instructor and Teaching Assistant Office Hours: Please visit the Mathematical Finance program's office hour schedule.
Course Abstract
The goal of the course is to introduce the students to an overall picture of the financial markets, their main features, products and operations. Risk and risk management will also be a main component in the course. The connection between quantitative methods and models to their actual usage in the financial world will be emphasized. The course will cover most of the material in "Options, Futures and other Derivatives" by John Hull (Pearson, 2015) and "Risk Management and Financial Institutions" by John Hull (Wiley, 2015).Pre-requisites
Math 16:643:621 (Mathematical Finance I) or Math 01:640:485 (Intro to Math Finance).Co-requisites
None
Required Textbooks
- John Hull : Options, Futures and Other Derivatives, 10th edition ISBN-10: 013447208X
- John Hull : Risk Management and Financial Institutions (Wiley finance), 5th edition ISBN-10: 1119448115
Sakai
All course content – lecture notes, homework assignments and solutions, exam solutions, supplementary articles, and computer programs – are posted on Sakai and available to registered students.Grading
The recommended grading scheme, subject to instructor confirmation, is: In class presentation and attendance 30%, homework 10%, midterm exams 30%, and final project 30%. Exams are in-class.Class Policies
Please see the MSMF common class policies.Weekly Lecturing Agenda and Readings
This page will record the topics we cover in each week, reading assignments, and additional information as needed. Reading material from the texts on the reserve list is strongly suggested, but not absolutely necessary. Reading material from the class text and handouts is required. Students should study the reading assignments before class.
| Week |
Topics |
Reading Assignments (Chapters) |
| 1 |
Financial institutions and their trading, insurance companies and pension plans, mutual funds and hedge funds, trading in financial markets |
OFD 1,10 RMF 2,3,4,5 |
| 2 |
Futures: mechanics of future markets, hedging strategies using futures, determination of forward and future prices |
OFD 2,3,5 |
| 3 |
Mechanics of option markets, properties of stock options, trading strategies involving options. option pricing and modeling |
OFD 10, 11,12 |
| 4 |
Options on stock indices and currencies, futures options, exotic options |
OFD 17,18,26 |
| 5 |
Interest rates: type of rates, measuring interest rates, interest rate models, forward rates, bond pricing, duration, convexity, interest rate futures |
OFD 4,6,9, 30,32 RMF 9 |
| 6 |
Fixed income derivatives: options on bonds, bond forwards and futures, caplets, floorlets, swaps, swaptions |
OFD 7, 29, 31 |
| 7 |
Valuation and scenario analysis: the risk neutral and real worlds, risk neutral evaluation, scenario analysis, when both worlds have to be used, the calculations in practice, martingales and measures, numeraire and change of numeraire |
OFD 28, 35 RMF 7 |
| 8 |
Hedging and volatility: The Greeks, Implied volatility and the volatility surface, pricing derivatives using the volatility surface, the realities of hedging, hedging exotic options |
OFD 19, 20, 36 RMF 8,10 |
| 9 |
VaR and volatility: definition of VaR, VaR and capital, coherent risk measures, implied volatility, historical volatility, ARCH, GARCH |
OFD 22, 23 RMF 12 |
| 10 |
Credit risk: credit ratings, credit risk in derivative transactions, default correlation, credit VaR, credit derivatives: CDS and CDO |
OFD 24,25 RMF 11,21 |
| 11 |
Historical simulation, model building approach, model building vs historical simulation |
OFD 22 RMF 13,14 |
| 12 |
Scenario analysis and stress testing, operational risk, liquidity risk, model risk |
OFD 19 RMF 24,25 |
| 13 |
Risk management: managing credit risk, margin, OTC markets, estimating default probabilities, CVA and DVA, enterprise risk management |
RMF 18,19,20,27 |
| 14 |
The financial crisis of 2007-2008 (and other crises): the role of structured credit and risk managements, contagions, roles of incentives and importance of transparency, lessons learned, regulations before and after the crisis |
RMF 6,15,16 |
| 15 |
Course review, final presentations |
|
| 16 |
Final presentations |
Library Reserves
All textbooks referenced on this page should be on reserve in the Hill Center Mathematical Sciences Library (1st floor). Please contact the instructor if reserve copies are insufficient or unavailable.Additional Textbooks
Class lectures will draw on material from the following texts and current research articles. Please see the Rutgers Mathematical Finance Reference Texts blog for additional textbooks.
- P. Wilmott. Frequently asked questions in quantitative finance. John Wiley & Sons, 2010.
- M.S. Joshi, N. Denson and A. Downes. Quant Job Interview: Questions and Answers. CreateSpace, 2008
- Kuznetsov. The complete guide to capital markets for Quantitative Professionals. McGraw Hill Professional, 2007.
