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# MATH 2281 3.00MW (Winter 2013)

*Financial Economics*

Course Outline

### Prerequisites:

- Interest rates (MATH 2280 or equivalent)
- Probability (MATH 2030)
- Linear algebra (MATH 1021 or MATH 2221)

Note that MATH 2131 is no longer a prerequisite.
### Course Webpage

www.math.yorku.ca/~salt/courses/2281w13/2281.html
### Lectures:

MWF 9:30-10:20 in HNE 031 (Health, Nursing, Environmental Studies building)

### Instructor/Contact Information:

Tom Salisbury

Department of Mathematics and Statistics
- Departmental office: N520 Ross Building, (416) 736-5250,
FAX: (416) 736-5757
- Undergraduate Program office: N502/503 Ross Building, (416) 736-5902
- Math/Stat lab: S525 Ross Building

### Office hours:

Wednesday, 11:00am-12:00 noon
### Text:

*Options, Futures, and other Derivatives* by John Hull, 8th edition
(Prentice Hall).

I will assume you have access to the
textbook for purposes of additional reading or homework. It is available in
the bookstore. Because the book has few worked problems, I also got the
bookstore to order the solutions manual, but I will not refer to it or
assume you have it. Strictly speaking you don't absolutely need to buy
the textbook, as my course notes will be available on the web. But if you don't
buy the text, you will need to refer to the copy on reserve
in Steacie library.
### Grading:

- 20% Midterm exam (Tentative date Friday February 15)
- 20% Midterm exam (Tentative date Friday March 15)
- 15% Assignments (between 5 and 7)
- 45% Final exam
- Restrictions on TA hours mean that only a
selection of the assigned problems will be marked.
- No late assignments will normally be accepted, but I will
drop everybody's worst assignment mark.
- Assignments may be handed in in class
or dropped in the course mailbox (one of the brown boxes by the
north elevator of the 5th floor of Ross will soon have our course
number on it).
- All assignment and exam marks should be interpreted
as raw scores and not "percentages". Cutoffs will be announced for
converting midterm scores into letter grades. The distribution of
scores will be announced for both the midterms.
- There will be no makeup midterm examinations. If you miss a
midterm exam due to illness, and can supply an
acceptable note from your doctor, then I will give more weight to
your other examination results. This will be done by calculating
equivalent midterm scores based on your ranking on the other exams.
- Students are responsible for reviewing York's policies concerning
academic integrity.

### Course description:

This is a course about the mathematics of derivative securities and options,
in discrete time.
It is designed to follow MATH 2280, which treats the mathematics of cash
flow and bonds. We will consider the no-arbitrage theory of pricing, forward
contracts and futures, American and European options, put-call parity,
hedging, interest rate derivatives, binomial models and the Black-Scholes-Merton pricing formula. We will make connections with the continuous-time theory
(known as stochastic calculus), but will not cover the latter mathematically.
This course is a requirement for the specialized honours actuarial stream of
the mathematics for commerce program, and for the financial mathematics
stream of the computational mathematics program. Any actuarial student
wishing to write exam MFE of the Society of Actuaries should consider this
course, because that examination is largely based on this material.