Instructor: Professor Stanley R. Pliska, Room 2333 University Hall, 996-7170, srpliska@uic.edu, web: www.uic.edu/~srpliska
Prerequisite: This course is intended primarily for Ph.D. students in economics and other areas of the business college as well as grad students from the math department. MBA students are also welcome, but they should realize that this is a theoretical course making significant use of quantitative methods. Besides having an interest in finance (such as by being a regular reader of financial pages or viewer of CNBC), students should be comfortable with calculus, elementary probability theory, and linear algebra. Some introductory knowledge of stochastic processes and optimization theory, especially linear programming, would be helpful but is not essential. It would not hurt to have had a course or two in finance and/or economics.
Text: Introduction to Mathematical Finance: Discrete Time Models by Stanley R. Pliska, Blackwell Publishers. The class will cover much of this book. Information about my book, including the Table of Contents, can be found elsewhere on my web page (www.uic.edu/~srpliska/IntroMF.html). Note that Japanese, Polish, and Chinese versions of this book are available.
Overview: The aim is to learn some basic theory about financial markets, especially the financial economic theory associated with derivatives and portfolio management. Although this material will be presented in a mathematically rigorous fashion, by studying discrete time models of securities the level of math will be kept relatively elementary. Nevertheless, we will be studying principles that are of fundamental importance, namely, economic principles that play important roles in the modern financial industry. This course is intended for students who like mathematical economics, quantitative subjects in finance like futures and options, actuarial science, and/or financial engineering. It is ideal for students who are intending to subsequently take more advanced courses in the area of mathematical finance. Although some MBA students often enroll, do well, and seem to enjoy the course, most MBA students will find FIN 516, a course on futures and options, much more applied (although still mathematical!) and thus more appropriate for their needs and interests.
Schedule: The objective is to cover much of the book, which means a pace of about eight pages per class session. This pace will be adjusted depending upon the interests and abilities of the students. Also, we will skip some topics in chapter 5 and elsewhere. The midterm exam will be in the classroom. Homework problems will be assigned at various times. The form (e.g., in class, take home) and timing of the final exam are subject to discussion.
Grade: Various homework problems 30%; Midterm Exam
35%; Final Exam 35%.