Math of Finance
Winter term, 2007
Econ 135,
Math 176
T Th 8:00-9:20, HH 161
D. Saari,
dsaari at
uci.edu
Welcome to the class!
All of us, including me, should expect to work hard during this
course.
Let me warn you that the material is not easy.
But if you are serious about the
course, you can expect to learn a lot about this important topic.
As there is a lot to cover, we will have a full session on the first day of classes, 8 am,
Tuesday, January 9. (As for the time, I fully agree with what you must be thinking: an 8
AM starting time probably should be prohibited by the “cruel and unusual punishment”
clause of the Constitution.
I don’t like 8 AM any better than you do, but we are stuck
with it!) This first lecture will include material that is different from anything you have
seen before.
The course will start at a moderate pace so that everyone can grasp the
foundations and basic definitions.
Then we will pick up speed: fasten your seatbelts for
the last part of the course.
Important advice
:
Be sure to create a study group that consists of three or four of you.
Almost always in the past, those students who worked with serious study groups to go
over the homework, lecture notes, to study for exams, etc., did much better than students
who tried to learn the material on their own.
Indeed, to motivate you to work with others,
I decided NOT to post answers for homework.
A group usually gets the correct one.
Also, discussion is important: during class, I encourage questions.
As you will discover
during the first day of class, expect me to ask
you
questions.
Overview:
To give you an overview of the course, by the end of the term you will learn
how to derive the Black-Scholes partial differential equation that governs much of the
option action in finance, how to solve the equation, how to interpret and use it, how to set
up portfolios, how to hedge, and on and on.
Along the way we will review the
mathematics, probability, statistics, and economics that you need to handle the material.
There is no formal syllabus:
the reason is that I purposely run this course in a manner to
permit enough flexibility to meet the needs and interests of the students.
Stated simply,
instead of presenting material, I want to teach students.
Communication:
I rely on email, so expect about two or three messages a week from
me.
For instance, to ensure that my assigned homework reflects where we are in the
course, rather than where I hoped we would be, I usually assign homework problems via
email.
I will use email to send you announcements about the scheduling of extra help-
sessions, your grade on exams and your final course grade, when old exams are posted on
the web page, etc.
Also, when a student raises an interesting question about the course
material, I will send the answer to the class.
Other information can be found on the class
webpage: this includes a copy of this letter, email messages, other course information and