MATH4210 Financial Mathematics (2011-12)
Lecture Hours and Venues: Every Tuesday 10:30am-12:15pm at LT2, LSB and
Thursday 12:30pm-1:15pm at LT5, LSB
Lecturer Office Hours:
Every Thursday 11:30am-12:15pm, but please send me an email
or call me first (2609-7970), if possible.
About the Lecturer:
About the Tutors: Mr. Tsz-Ho Lee and Guojian Yin (Email: thlee, firstname.lastname@example.org, Office: Rm 101, LSB).
Tutorial Hours and Venues:
Every Thursday 11:30am-12:15pm at LT5, LSB and Thursday 1:30pm-2:15pm at LT5, LSB.
Topics of the course will include: Basic option theory, forward and
futures contracts, model of asset price, Ito's Lemma, asset price
random walk, Black-Scholes model, free boundary problems of options,
discrete random walk model, the binomial methods, Monte Carlo methods,
and if time allows, finite difference method.
This course is about the mathematics
of option pricing. Students taking this course are expected
to have good knowledge in probability theory
and partial differential equations.
You can download
Chapter 8 (click here)
of my lecture notes to get a feeling of the
mathematics level required. If it seems difficult
to you, it certainly will be. May be you should then consider
similar courses offered in the University, e.g. FIN4110 or RMS4007.
They most likely will require less mathematical knowledge.
- Options, Futures and Other Derivatives,
by John Hull (Prentice Hall)
- The Mathematics of Financial Derivatives: a Student Introduction,
by Paul Wilmott, Sam Howison and Jeff Dewynne (Cambridge University Press)
- Mathematical Models of Financial Derivatives,
by Yue-Kuen Kwok (Springer)
- Fundamentals of Futures and Options Market,
by John Hull (Prentice Hall)
- Option Pricing: Mathematical Models and Computations,
by Paul Wilmott, Sam Howison and Jeff Dewynne (Cambridge)
- An Elementary Introduction to Mathematical Finance: Options
and other Topics, by Sheldon Ross (Cambridge)
- The first 7 chapters were modified from the lecture notes prepared by
Prof. Xun Li of The National University of Singapore, and
are based on the book "Options, Futures and Other Derivatives"
by John Hull.
- The remaining chapters are based on the book
"The Mathematics of Financial Derivatives: a Student Introduction" by
- Some proofs are taken from the book "Mathematical Models of
Financial Derivatives" by Yue-Kuen Kwok.
Link to the Lecture notes, assignments etc.
- Chapter 1 -- Introduction
- Chapter 2 -- Options
- Chapter 3 -- Interest Rates and Forwards
- Chapter 4 -- Put-Call Parity
- Chapter 5 -- Trading Strategies (will not be taught in class)
- Chapter 6 -- Geometric Brownian Motions
- Chapter 7 -- Ito's Lemma
- Chapter 8 -- Black-Scholes Equations
- Chapter 9 -- Numerical Methods for Option Pricing
- Chapter 10 -- Extensions of Black-Scholes Model
Tentative Teaching schedule:
- Week 1: Chapter 1
- Week 2: Mid-Autumn Festival
and Chapter 1 (1st Assignment)
- Week 3: Chapter 2
- Week 4: Chapter 2, Typhoon--class cancelled (2nd Assignment)
- Week 5: Chapter 3
- Week 6: Chapter 4 (3rd Assignment) and Quiz 1 (Oct 13)
- Week 7: Chapters 4,6
- Week 8: Chapters 6,7 (4th Assignment)
- Week 9: Chapter 7
- Week 10: Chapter 8 (5th Assignment)
and Quiz 2 (Nov 10)
- Week 11: Chapter 8 (Programming Assignment)
- Week 12: No class on Nov 22 and
talk by Dr. Guo (Nov 24)
- Week 13: Chapter 9.4 and 9.5 (6th Assignment)
- Supplementary class
(December 6 (Tuesday), 10:30am-12:15pm at LT5, LSB): Chapter 10
Talk on November 24 will be by
Dr. Yves Guo (Executive Director, Head of Financial Engineering for Equities at
Morgan Stanley (Asia Pacific))
on "Option Derivatives in the Real World"
- Five/Six Homework Assignments: 15 marks
Solution will be uploaded right after due date.
So no late homeworks will be accepted.
- One Programming Assignment (in any language you like): 5 marks
- Two quizzes (Oct 13 and Nov 10, from 12:30pm to 1:15pm): 20 marks
- Final Examination (date centrally scheduled): 60 marks
Cover Chapters 1 to 9.6 and Section 10.5
- If you are found cheating, you will automatically get an F
grade in this course and your act will be
reported to the Department for necessary disciplinary actions.
- To avoid copying of programs, your programs may be spot-checked,
i.e. you will be asked questions regarding the statements
in your program when you hand in your program in person.
- Please don't let others copy your assignments or programs as
we don't have a way to tell who is copying who and you may be
liable to the penalties.