Current Course Schedule

16:643:632

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.