Page Updated: 3/19/2002

**Prerequisites:**A solid background in probability theory at the 400 level, math 425 or equivalent.**Credit:**3 credit hours**Required Text:***Options, Futures and Other Derivatives*by Hull, fourth edition, Prentice Hall 1999.**Background and Goals:**This course is an introduction to the mathematical models used in finance and economics with particular emphasis on models for pricing derivative instruments such as options and futures. The goal is to understand how the models derive from basic principles of economics, and to provide the necessary mathematical tools for their analysis. A solid background in basic probability theory is necessary.**Contents:**(a) Forwards and Futures, Hedging using Futures, Bills and Bonds, Swaps, Perfect Hedges. (b) Options-European and American, Trading Strategies, Put-Call Parity, Black-Scholes formula. (c) Volatility, methods for estimating volatility-exponential, GARCH, maximum likelihood. (d) Dynamic Hedging, stop-loss, Black-Scholes, the Greek letters. (e) Other Options.**Grading:**The grade for the course will be determined from performances on 8 quizzes, a midterm and a final exam. There will be 8 homework assignments. Each quiz will consist of a slightly modified homework problem.

8 quizzes= 8x10=80 points

midterm= 60 points

final= 80 points

Total= 220 points

- Homework Answers.
- Solutions to Homework I.
- Solutions to Homework II.
- Solutions to Homework III.
- Solutions to Homework IV.
- Solutions to Homework V.
- Solutions to Homework VI.
- Solutions to Homework VII.

- Winter 2002 midterm exam: Wednesday, March 13th, 6.00-7.30 pm, Dennison 455.
- Winter 2002 final exam: Monday April 22, 1.30-3.30 pm, Dennison 413.

- Winter 2001 midterm exam. postscript
- Solutions to winter 2001 midterm.
- Winter 2001 final exam. postscript
- Solutions to winter 2001 final.
- Winter 2002 midterm exam. postscript
- Solutions to winter 2002 midterm.

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