## ASRM 510. Financial Mathematics -- Instructor Syllabus

Textbook: Robert L. McDonald, **Derivative Markets. 3rd Edition**. Pearson

**PART ONE INSURANCE, HEDGING, AND SIMPLE STRATEGIES (3 hours)**

Chapter 2 An Introduction to Forwards and Options

Chapter 3 Insurance, Collars, and Other Strategies

Chapter 4 Introduction to Risk Management

**PART TWO FORWARDS, FUTURES, AND SWAPS (3 hours)**

Chapter 5 Financial Forwards and Futures

Chapter 6 Commodity Forwards and Futures

Chapter 7 Interest Rate Forwards and Futures

Chapter 8 Swaps

**PART THREE OPTIONS (15 hours)**

Chapter 9 Parity and Other Option Relationships

Chapter 10 Binomial Option Pricing: Basic Concepts

Chapter 11 Binomial Option Pricing: Selected Topics

Chapter 12 The Black-Scholes Formula

Chapter 13 Market-Making and Delta-Hedging

Chapter 14 Exotic Options: I

**PART FIVE ADVANCED PRICING THEORY AND APPLICATIONS (20 hours)**

Chapter 18 The Lognormal Distribution

Chapter 19 Monte Carlo Valuation

Chapter 20 Brownian Motion and Ito's Lemma

Chapter 21 The Black-Scholes-Merton Equation

Chapter 22 Risk-Neutral and Martingale Pricing

Chapter 23 Exotic Options: II

Chapter 25 Interest Rate and Bond Derivatives

If time permits, the following topics can be covered.

Chapter 24 Volatility

Chapter 26 Value at Risk

Chapter 27 Credit Risk

**Midterm Exams (2 hours)**

**Total: 43 hours**

Additional work required beyond the work required of undergraduates in the paired course MATH 476:

Graduate students are expected to work on more questions on assignments, midterm exams and the final exam. Graduate-only questions are expected to require more advanced and sophisticated understanding of the material.