Mathematics of Financial Derivatives

Results from the January Exam at the University of Vaasa, click here

Code and credit units: TIL.306, 5 cu

Teachers: Researcher Bernd Pape (University of Vaasa) and Professor Johan Knif (Hanken, Swedish School of Economics and Business Administration, Vaasa)

Course objective: The objective of the course is to introduce the student to the basics in mathematics utilized for pricing of financial derivatives, and provide the student basic understanding of the mathematical ideas and technical tools used in modeling the characteristics of derivatives, interest rates, and currencies with continuous time stochastic processes.

Contents: Financial derivatives, introduction to stochastic processes, stochastic differential equations, stochastic integration, discrete and continuous time option pricing models.

Teaching: (English) Lectures 52 h, including demonstrations 12 h.

Main Textbooks: Neftci, S.N. An Introduction to Mathematics of Financial Derivatives, 2nded.. Academic Press, London 2000.
Pliska, Stanley, R. (1997). Introduction to Mathematical Finance: Discrete Time Models. Blackwell Publishers.

Other Books: Duffie, Darrell (2001). Dynamic Asset Pricing Theory. Third Edition. Princeton University Press.
Willmot, P. (2000) . Derivatives: The theory and practice of Financial Engineering. Wiley, New York etc.

See also Seppo Pynnönen's lecture notes from last year: Course Description 2003

The essential pre-requisite of this course is a thorough understanding of basic probability theory. If this makes you feel a bit uncertain, you may now wish to refresh your knowledge in probability (7 pages) and random variables (19 pages). Both lecture notes are taken from Seppo Pynnönen's course in Basic Statistics.

For the most recent schedule of the second part of the course, click here.

Construction of Poisson and Wiener Processes:
Click here to access the excel file discussed in the lectures on Nov. 5th.

Solution to Assignment 3 on Exercise Sheet 2:
Click here to access the relevant excel file.

Finite Difference Methods Example File:
Click here to access the relevant excel file.

Risk Neutral Valuation Example File:
Click here to access the relevant excel file.

Contents of the course:
Lecture Notes
Exercise Sheet 1
Exercise Sheet 2
Exercise Sheet 3
Exercise Sheet 4

Credit Assessment:
There will be two intermediate exams on Friday, Oct. 22 at HANKEN and Friday, Dec. 3 at the University of Vaasa. Alternatively you may wish to take one exam covering the contents of the whole course.

Dates for Final Exams at the University of Vaasa:
Friday, Dec. 03, 2004, 12-16h (as an alternative to the Part II exam)
Monday, Jan. 31, 2005, 08-12h
Monday, Apr. 04, 2005, 08-12h
Exam dates at Hanken are 11.12, 15.01, 04.05.
No more than 3 attempts are allowed to pass the exam!!!
The partial exams on Oct. 22 and Dec. 3 count as one attempt. You may freely choose to take your exam at the University of Vaasa or Hanken regardless of your affiliation.

THERE IS NO PRE-REGISTRATION REQUIRED. Just show up in the first lecture.