Instructor: Vasily Strela
Office: 249 Korman Center
Phone: (215) 895-6823
E-mail: vstrela@mcs.drexel.edu
URL: http://www.mcs.drexel.edu/~vstrela

Office hours: Tuesday and Thursday 3-5pm or by appointment.

Main Text: The Mathematics of Financial Derivatives, A Student Introduction
by P. Wilmot, S. Howison, and J. Dewynne, Cambridge University Press, 1995.

Homework and Grading: There will be several homework assignments. You are encouraged to work together on the problems and to seek help during the office hours. However, you must write up the assignments by yourself.
Copying any part of an assignment is considered to be cheating.

There is no exams in this class. Final grade will be based on the homework grades.

Course Outline: This class is aimed to give an introduction to mathematical finance and in particular, derivatives' pricing. We will bring together financial reasoning, stochastic modeling of stock prices, simple partial differential equations and numerical methods for their solution. Explanations will be provided for material needed beyond elementary calculus, probability and algebra. We plan to discuss the following topics:

• Introduction to Derivative Products
• Hedging.
• Arbitrage.
• Asset Price Random Walks.
• Ito's Lemma.
• Black-Scholes Model.
• The Diffusion Equation. Initial and Boundary Conditions.
• Black-Scholes Formulae.
• Numerical Methods (finite difference, explicit and implicit methods, Crank-Nicolson method).
• Methods for American Options.
• Binomial Methods.
• Exotic and Path-dependent Options, Asian Options.
• Interest Rate Derivative Products.

Prerequisites: Calculus, basic probability, linear algebra.