A financial derivative is a contract specifying a future payoff which depends on the value of an underlying asset or some condition. Futures and forward contracts, stock options, and interest rate and currency swaps are the most widely traded derivatives, but more exotic products based, for example, on nonfarm payroll figures, amount of snowfall, or the stock market volatility have become available with the rapid growth of the global markets.
Financial derivatives are used for hedging and controlling risk due to the unpredictability of market and economic fluctuations, for speculation by increased leverage, and for gaining exposure to an underlying that is not directly tradable. Derivatives have evolved into a ubiquitous and vital tool in the modern economies with the notional value of open contracts presently adding to more than 50 times the annual US gross domestic product. On the downside, derivatives have been called financial weapons of mass destruction for the damage their prodigal use could conceivably inflict on the entire financial system, as was borne out by the implosion of Long Term Capital Management L.P. in 1998.
This course is intended as a mathematical introduction to the valuation of futures, options, swaps, and related financial instruments and to the basic computational techniques employed in pricing derivatives. The main topics covered are:
Text: Goodman, Stampfli: The Mathematics of Finance: Modeling and Hedging, AMS, 2001.
Prerequisites: Solid background in undergraduate calculus, linear algebra, and probability theory will be helpful. No prior familiarity with financial markets will be assumed.
Please feel free to contact me for further information.
| Juha Pohjanpelto |
| Professor |
| Department of Mathematics |
| Oregon State University |
| Corvallis, OR 97331-4605 |
| USA |
| phone: (541)737-5156 |
| email: juha@math.oregonstate.edu |
| homepage: http://www.oregonstate.edu/~pohjanpp |