MATH 3110 Investment and Financial Markets I

This course serves as an introduction to derivative contracts and option combinations. It also covers Arbitrage-fee options bounds & early exercise of American options. Arbitrage-fee valuation and risk-neutral pricing are used to price vanilla and exotic contracts using the binomial asset pricing model in discrete time, and the quantitative strategies to hedge portfolios consisting of such assets are also discussed.

Registration Name

Investment & Financial Markets

Lecture Hours

3

Lab Hours

0

Credits

3

Prerequisite

MATH 2600, MATH 3300

Offered

Athens: Fall as needed

Student Learning Outcomes

• Describe and failry price forward contracts on assets with or without dividend payments
• Describe and quantify the payoff and profits for a wide variety of options including puts, calls, strangles, spreads, collars, and floors
• Quantitatively relate option prices, risk-free lending rates, dividend rates, and asset prices via the principles of put-call parity.
• Use no-arbitrage principles to quantitatively bound fair prices of both European and American options as well as understand when early exercise of American options is optimal
• Employ the binomial asset pricing model to fairly price European and American options in discrete time
• Apply the concept of rando walks to understand binomial trees and historical volatility of asset prices
• Describe and price exotic derivatives including Asian, barrier, and lookback options;
• Model and hedge multi-asset portfolios in discrete time.
• Solve a wide variety of IFM/3F exam questions, as administered by SOA/CAS.