for MATH 5870/6870 Fall 2021 at Auburn University. index

# Some important announcements

• Welcome to choose this class. More information will come in late summer 2021.

# MATH 5870/6870: Financial Mathematics

### 2021 Fall, Auburn University

#### Contact

 Instructor Dr. Le Chen Email le.chen@auburn.edu Class Time MWF, 10:00 -- 10:50 Class Room PARKR 228 Office hours MWF, 13:00 -- 13:50
• When you send us emails, please do include the keyword MATH 5870 or MATH 6870 in the subject field of your email to ensure a timely response.

#### Course description

The course serves as an introduction to mathematical aspects of pricing of financial derivatives including the Black-Scholes model and the binomial option pricing model. Topics also include partial differential equations and relevant numerical methods.

#### Textbook

The following two books will be the main references for this course:

• "The Mathematics of Financial Derivatives: A Student Introduction", by Paul Wilmott, Sam Howison, and Jeff Dewynne, Cambridge University Press, ISBN: 978-0521497893
• "Derivatives Markets", 3rd edition, by McDonald, R.L., Pearson Education, ISBN: 978-0-32154-308-0.

#### Coverage

The course will cover the following topics

• Introduction to options.
• Binomial option pricing.
• Brownian motion.
• Stochastic integration.
• Stochastic differential equation.
• Ito's formula.
• Introduction to partial differential equations.
• Black-Scholes PDE and heat equation.
• Numerical solutions of PDE.

#### Prerequisite

• MATH 1610, 1620, 2650
• STAT 3600
• Some programming ability.

#### Students obligations

In order to successfully master the material and complete the course, you are expected to

• Read the textbooks and attend the lectures.
• Take the advantage of the office hours, which give you additional chance to interact with the
instructor.
• Complete midterm tests and quizzes. Complete the semester project and make a presentation.
• Do not hesitate to ask for help whenever needed.

Note: The syllabus was created in March 2021, and it is subject to changes during the semester.

#### Assignments

• There will be about 8 homework assignments but not collected.
• Six quizzes and three tests will be given throughout the semester on Fridays; see the table below.
• A semester project will be assigned. For this project, you need to provide your own analysis,
write your codes, and run numerical simulations. You need to make a short presentation in the last
week of the semester.
• Please note down the above dates. No late tests/quizzes will be given.
• More details will come during the semester.

#### Attendance

• We will check the attendance randomly during the semester but not at each class meeting.
• Attendance will not directly counted into your final score.
• But sufficient attendance will make your eligible for grade curving at the end of semester.

#### Assessment

• The final score will be determined as follows:
• Based on the final score (plus potential bonus points), the final letter grade will be
determined as follows:
A 92%-100% A- 90%-91.9%
B+ 87%-89.9% B 82%-86.9% B- 80%-81.9%
C+ 77%-87.9% C 72%-76.9% C- 70%-71.9%
D+ 67%-67.9% D 67%-67.9% D- 60%-61.9%
F 0%-59.9%

#### Slides

• Slides will be provided and updated constantly throughout the semester over here.

#### Tentative schedule

• Below is the tentative schedule that may change during the semester:
Monday -- Friday Coverage Test/Quizzes on Friday Misc
Week 1 08/16 -- 08/20
Week 2 08/23 -- 08/27   Quiz 1
Week 3 08/30 -- 09/03   Quiz 2
Week 4 09/06 -- 09/10     Test 1
Week 5 09/13 -- 09/17
Week 6 09/20 -- 09/24   Quiz 3
Week 7 09/27 -- 10/01   Quiz 4
Week 8 10/04 -- 10/08       Fall Break week
Week 9 10/11 -- 10/15     Test 2
Week 10 10/18 -- 10/22
Week 11 10/25 -- 10/29   Quiz 5
Week 12 11/01 -- 11/05   Quiz 6
Week 13 11/08 -- 11/12     Test 3
Week 14 11/15 -- 11/19
Week 15 11/22 -- 11/26       Thanksgiving Week
Week 16 11/29 -- 12/02 Presentation

#### Feedback

• Your feedbacks are important for us to improve the teaching and make the learning process more
effective and enjoyable.
• Here are two ways that you could let me know what your think:
1. You may send me an email.
2. If you want to send me some feedback in an anonymous way, you may fill in the following form:

#### Honor code

• Students should familiarize themselves with Auburn honor code here
• Students are encouraged to share ideas and solutions on problem sets and labs, but must
express those ideas in their own words in their submitted work.
• Students are not authorized to view or use the work of another student during exams.

#### Accessibility

Your success in this class is important to me. We will all need accommodations because we all learn differently. If there are aspects of this course that prevent you from learning or exclude you, please let me know as soon as possible. Together we’ll develop strategies to meet both your needs and the requirements of the course.

I encourage you to visit the Office of Accessibility to determine how you could improve your learning as well. You can register and make a request for services from the Office of Accessibility. In this case, please do inform me of such requests. See the following link for more information:

#### Harassment and Discrimination


Auburn University is committed to providing a working and academic environment free from prohibited
discrimination and harassment and to fostering a nurturing and vibrant community founded upon the
fundamental dignity and worth of all its members. Auburn University prohibits harassment of its
students and employees based on protected classes and works to eliminate prohibited behavior from
its academics and employment through corrective measures and education.

The Office of AA/EEO oversees compliance with the Policy Prohibiting Harassment of Students, the
Policy Prohibiting Harassment of Employees, and the Policy on Sexual and Gender-Based Harassment and
Other Forms of Interpersonal Violence.

Protected classes are race, color, sex (which includes sexual orientation, gender identity, and
gender expression), religion, national origin, age, disability, protected veteran status, or genetic
information.

Auburn University also prohibits retaliation against any individual for opposing a practice he/she
reasonably believed to be discriminatory; for filing an internal or external complaint, grievance,
or charge; or for participating in any investigation or proceeding, in accordance with Auburn
University's policies.