CATALOG DESCRIPTION:

The mathematical theory associated with asset price dynamics; binomial pricing models; Black-Scholes analysis; hedging; volatility smile; implied volatility trees; implied binomial trees. Prerequisites: MATH 172 or equivalent; MATH 308 or equivalent; basic probability.

LEARNING OUTCOMES:

Know about the mathematical theory associated with asset price dynamics; binomial pricing models; Black-Scholes analysis; hedging; volatility smile; implied volatility trees; implied binomial trees.

CREDITS:

3 credits

TEXTBOOK:

• An Introduction to Financial Option Valuation, by D.J. Higham, Cambridge University Press, ISBN 978-0-521-54757-4.

Stock at MSC Bookstore may be limited. There is availability at ValoreBooks and Amazon (new/used/electronic) at the time of writing.

OTHER BOOKS:

You may find the following books helpful:

• Derivatives Markets, by R.L. McDonald, Pearson, ISBN 978-0321543080. Very detailed book with a slant towards more finance and less math.
• Elementary Stochastic Calculus With Finance in View, by T. Mikosch, World Scientific, ISBN: 978-9810235437. A solid mathematical book that is more readable than most introductions to stochastic calculus.
• Option Volatility & Pricing, by S. Natenberg, ISBN 978-1557384867. A practitioner's guide to trading options: spreads, Greeks, rules of thumb.

INSTRUCTOR:

Dr Gregory Berkolaiko, Blocker 625c.
Email: berko AT math.tamu.edu

TIME AND PLACE:

TR 9:35-10:50, BLOC 149

OFFICE HOURS:

Mondays 10:10-11, Fridays 11-12 and by appointment.

EXAMS:

Midterm exam: Thursday, March 9 (regular class time and place). Final exams: Thursday, May 4, 12:30–2:30pm (regular class place).

HOMEWORK:

Homework is posted on the course homepage, approximately bi-weekly. At least one homework will involve Matlab component.

QUIZZES:

There may be additional quizzes, announced or not. Quiz grades will be added to the pool of HW grades.

FINAL GRADES:

The following grade breakdown will be used:

Grade	Percentage		Grade Ingredients:
A	85% and more		Midterm	40%
B	75% and more		Homeworks	10%
C	65% and more		Final exam	50%
D	55% and more
F	less than 55%

MAKE-UP POLICY:

Make-ups for missed quizzes and exams will only be allowed for a university approved excuse in writing. Wherever possible, students should inform the instructor before an exam or quiz is missed. Consistent with University Student Rules, students are required to notify the instructor by the end of the next working day after missing an exam or quiz. Otherwise, they forfeit their rights to a make-up.

GRADE COMPLAINTS:

Sometimes the instructor or the grader might make a mistake grading your work. If you feel that this has happened, you have one week since the graded work was handed back to you to talk to the instructor. If a mistake is confirmed, the grade will be changed. No complaints after that deadline will be considered.

SCHOLASTIC DISHONESTY:

Copying work done by others, either in-class or out of class, is an act of scholastic dishonesty and will be prosecuted to the full extent allowed by University policy. Collaboration on assignments, either in-class or out-of-class, is forbidden unless permission to do so is granted by your instructor. For more information on university policies regarding scholastic dishonesty, see University Student Rules.

UNAUTHORIZED MATERIAL:

Whenever doing assignments it is always a good practice to cite the sources of formulas, ideas etc. In this class, there are three types of sources.

1. Authorized material: material that is explicitly allowed to use for completion of assignments: our textbook, any other books mentioned above, lecture notes.
2. Forbidden (unauthorized) material: textbook author's solutions to exercises; past years' homework solutions. Using this as aid in completing assignments will be prosecuted to the full extent.
3. Unassessed material: material that is neither authorized nor explicitly forbidden (yet). You must reference the material that you use. You must be prepared to furnish a copy for inspection. It may be subsequently declared unauthorized, but such prohibition will not affect anyone retroactively.

AGGIE HONOR CODE:

"An Aggie does not lie, cheat, or steal or tolerate those who do." See: http://aggiehonor.tamu.edu/.

STUDENTS WITH DISABILITIES:

The Americans with Disabilities Act (ADA) is a federal anti-discrimination statute that provides comprehensive civil rights protection for persons with disabilities. Among other things, this legislation requires that all students with disabilities be guaranteed a learning environment that provides for reasonable accommodation of their disabilities. If you believe you have a disability requiring an accommodation, please contact Disability Services, currently located in the Disability Services building at the Student Services at White Creek complex on west campus or call 979-845-1637. For additional information, visit disability.tamu.edu.

COPYRIGHT POLICY:

All printed materials disseminated in class or on the web are protected by Copyright laws. One photocopy (or download from the web) is allowed for personal use. Multiple copies or sale of any of these materials is strictly prohibited.