MIT18_S096F13_lecnote1.pdf - 18.S096 Topics in Mathematics with Applications in Finance Instructors Dr Peter J Kempthorne Dr Choongbum Lee Dr Vasily

MIT18_S096F13_lecnote1.pdf - 18.S096 Topics in Mathematics...

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18.S096: Topics in Mathematics with Applications in Finance Instructors: Dr. Peter J Kempthorne, Dr. Choongbum Lee, Dr. Vasily Strela, Dr. Jake Xia
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2 18.S096: Key Facts The purpose of the class is to expose undergraduate and graduate students to the mathematical concepts and techniques used in the financial industry. Mathematics lectures will be mixed with lectures illustrating the corresponding application in the financial industry. MIT mathematicians will teach the mathematics part while industry professionals will give the lectures on applications in finance. We plan to organize an optional field trip to visit Morgan Stanley offices in New York on October 15. Prerequisites: 18.01, 18.02, 18.03 (or approval of instructor), 18.05 or 18.440, 18.06 Prior knowledge of economics or finance is not required but may be helpful for some lectures. The class will have problem sets for each math lecture (due in 2 weeks after assignment) and a final paper on a math finance topic of student’s choice.There will be no exams. The final grade will be 75% based on the homework and 25% on final paper.
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How are Financial Products Traded? Introduction of basic knowledge of financial markets and quantitative analysis Jake Xia MIT Course 18.S096 September 5, 2013 The views represented herein are the author’s own views and do not necessarily represent the views of his past and current employers.
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The Story of Pi, Alpha, Beta, Delta, Gamma, Theta, and Vega
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Markets, Exchanges, OTC, Regions Money, Currencies Stocks, Equity Indices, IPOs, Primary/Secondary Loans, Bonds, Credit Products Commodity Real Estate, Mortgages, ABS Derivatives, Structured Products
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Banks: deposits, commercial lending Investment Banks: Fixed Income Equity IBD, Corporate Finance Asset Management Wealth Management
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Zero-sum game? Investorshave money, need return Borrowersneed money, have risks Trade between lender and borrower is still the main driving force.
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Market Participants: Dealers, Market Makers, Brokers Individuals, Retail Investors Mutual Funds, Insurance Companies, Pension Funds, Asset Managers, SWFs Hedge Funds (various strategies), PE Governments, Policy Makers Corporate Hedgers, Liability Management
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Trader Types: 1. Hedger 2. Market Maker, bid and offer 3. Proprietary Trader Fund Portfolio Manager beta and alpha, linear regression of two time series: return of assets a and b: R(a) =a + b *R(b)
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Hedging Trade Examples: Bond issuer hedge interest rate exposures, hedge of payables. Example: 10yr Samurai bonds issued in JPY by Australia corporates. Fixed rate difference of 4.5% - 1% = 3.5%. Need receive JPY and pay AUD to hedge.
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  • Spring '17
  • Jim Angel

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