Math 294
Mathematics of Finance

Winter 2009

This course is an introduction to the mathematics of financial models, especially hedging and arbitrage pricing. The course begins with the development of the basic ideas of hedging and arbitrage pricing in the discrete time setting of binomial tree models. Relevant notions (conditional expectation, martingale, change of measure, martingale representation) will be introduced in this discrete setting. Continuous time models will then be covered, based on the Brownian motion process and Itô's stochastic calculus. These tools will be applied to option pricing and the Black-Scholes formula. Additional topics will be discussed, as time allows.
Back to Math 294 Homepage
December 15, 2008