MATH 4FM3/6FM3, Winter 2019
FINANCIAL MARKETS AND DERIVATIVES
Math 4FM3 blends together elements of stochastic calculus, practical issues in economics and the financial markets, and professional skills, into a course designed for launching students into professional careers upon graduation, or into a graduate program in financial mathematics. Following from Math 3FM3, the course develops continuous time models for stocks, foreign exchange rates, and interest rates in order to tackle the mathematical challenges of pricing and hedging derivative instruments in these markets. The models employ Brownian motion/geometric Brownian motion, leading to the introduction of Ito calculus to construct portfolios that protect the user from risks in the financial markets. The course develops, explores, and extends the famous Black-Scholes model, and many famous models for fixed income derivatives. Math 4FM3 develops the mathematics in the context of real-world issues, and aims to develop students' professional competencies. Each class begins with students presenting articles they have read through news sources, and the class analyzes its impact and relevance to the material being studied. Students complete the course with group projects on topics in financial mathematics of current interest in the financial industry, delivering a short presentation and paper. This complements assessment using a midterm, final exam, class participation marks, and assignments. The assignments include introductions and tutorials in the use of Excel and Visual Basic. Math 4FM3 serves as the capstone course to the University's Actuarial and Financial Mathematics program, and together with Math 3FM3, completes the study of material examined in the actuarial MFE exam. But the course primarily aims to develop students' skills in the practice of taking advanced mathematical methods, and applying them to current problems being tackled in the financial industry and by academic researchers.
INSTRUCTOR: Anas Abdallah
Modelling of options, futures, interest rate securities and other financial derivatives in continuous time using Brownian motion and stochastic calculus. Topics include risk-neutral pricing, the Black-Scholes framework, dynamic hedging, volatility and risk.
Three lectures; one term
Prerequisite(s): MATH 3FM3
PLEASE REFER TO MOSAIC FOR THE MOST UP-TO-DATE INFORMATION ON TIMES AND ROOMS