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Course Description form
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Course Title
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English Code /No
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ARABIC code/no.
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credits
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Th.
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Pr.
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Tr.
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TCH
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Financial Math.
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333
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ر 333
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3
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3
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Pre-requisites
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Math 204 & Math205 & Math251
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Brief contents, to be posted in university site and documents(4-5 lines):
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Simple interest. Exact and approximate time. Bank discount. Summary of simple interest and bank discount formulas. Compound interest. Assumption and notation, put-call parity. Binomial trees. Wiener processes and Ito’s lemma, the Black-Scholes-Merton model. Volatility smiles.
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Faculties and departments requiring this course (if any): Faculty of Science/
Department of Mathematics.
Objectives: Prefer In points
1- To know a brief introduction on the origin of Mathematics of Finance.
2- To know how to think mathematically.
3- To gain the knowledge of writing solutions
4- To formulate mathematical problems using different laws of solutions and compare between different forms.
Contents: Prefer In points
1- A brief summery on Mathematical Finance.
2- Introduction to the course: Simple interest, principal, time, interest rate, ordinary interest, exact interest, applications.
3- Present value. Bank discount. Compound interest.
4- Assumption and notation, put-call parity. Binomial trees: one-step binomial model, risk neutral valuation, two-step binomial trees, a put example, American options, volatility.
Course Outcomes:
A- Knowledge:
Given a brief introduction on the origin of Mathematics of Finance to teach areas that are not covered in the other courses. This course is new and all students should take the first idea about it. Students will learn various finances elements and how to apply them.
B- Cognitive Skills:
Discussing and learn how the students can think and proving abstractly the proof of the laws used in every case. In addition, student should gain mental skills, knowledge, analysis, comprehension, applications and evaluation.
C- Interpersonal skills and responsibilities:
The student will improve his logical thinking and learn the techniques of the proof of laws. As a result he will be equipped with the methods of solved exercises.
D- Analysis and communication:
The student mat apply the techniques learn in this course to apply the laws he studied in examples in his daily life.
Text book:
John C. Hull: Options, Futures, and Other Derivatives. 7th ed., Prentice Hall
USA, 2009.
Other Information Resources
http://www.megaupload.com/?=RZXK7D6P
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Time table for distributing Theoretical course contents
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Remarks
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Experiment
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weak
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Introduction to the course: Simple interest, principal, time, interest rate, ordinary interest, exact interest, applications.
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1
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Exact and approximate time, present value at simple interest, equations of value, investment analysis, applications.
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2
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Bank discount, interest rate equivalent to a bank discount rate, promissory notes, exact and ordinary discount.
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3
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Summary of simple interest and bank discount formulas. Compound interest: compound amount formula.
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4
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Finding n, law of organic growth, effective interest rate.
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5
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Interest for part of a period, amount at changing rates.
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6
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Present value at compound interest, finding the rate, finding the time.
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7
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Equations of value, continuous compounding, properties of stock options.
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8
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Assumption and notation, put-call parity. Binomial trees:
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9
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One-step binomial model, risk neutral valuation.
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10
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Two-step binomial trees, a put example, American options, volatility.
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11
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Wiener processes and Ito’s lemma, the Black-Scholes-Merton model.
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12
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Volatility smiles: put-call parity revisited.
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13
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Greek letters, basic numerical procedures.
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14
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Final exam.
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