Syllabus ACTSC 970

Syllabus ACTSC 970 - ACTSC 970/ACC 770: Finance I...

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1 ACTSC 970/ACC 770: Finance I – Foundations of Finance Tony S. Wirjanto M3 -3013, x 35210 Email: twirjant at uwaterloo dot ca Office Hours: Th, Fr: 4:00-5:00 pm (or by appointment) Fall 2011 Course Syllabus Objectives This is a first graduate course in finance. It gives an introduction to theory of derivative security (or option) pricing and proceeds in three stages. First , fundamental concepts of finance are introduced, using a discrete-time binomial model. These concepts include financial markets, derivative securities, arbitrage, hedging and replicating portfolios, risk-neutral probabilities, risk- neutral pricing formula, and market completeness. Then basic ideas of probability and stochastic processes are reviewed for finite probability spaces and discrete-time processes: conditional expectation, martingales, and Markov processes. Lastly , the emphasis of the course is shifted from a discrete-time to continuous-time framework to cover the main topics in the course. This includes a summary of probability measure theory and conditional expectation, Brownian motion and quadratic variation, martingales, Ito integral, stochastic calculus, replicating portfolios and hedging, Black-Scholes-Merton formulae for a European-style call option price, change of measure and Girsanov's Theorem, risk-neutral pricing theory, no-arbitrage and existence of risk- neutral measure, and market completeness and uniqueness of risk-neutral measure. Pre-requisites There is no formal pre-requisite for this course. However students should be familiar with concepts taught at undergraduate courses on ordinary differential equations, multivariable calculus, linear algebra, and probability theory. In particular, a good understanding of probability at the level of the textbook by Sheldon Ross, A First Course in Probability , would be a definite asset. It would also be helpful (but not strictly necessary) if students are well acquainted with
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Syllabus ACTSC 970 - ACTSC 970/ACC 770: Finance I...

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