401-3913-01L  Mathematical Foundations for Finance

Semester Autumn Semester 2014
Lecturers J. Teichmann
Periodicity yearly course
Language of instruction English
Comment A new elective course Introduction to Mathematical Finance (4V+1U, 10 ECTS credits) will be offered in the next spring semester for Mathematics Bachelor and Master. 401-3913-01L Mathematical Foundations for Finance is only eligible if 401-3888-00L Introduction to Mathematical Finance is not recognised for credits (neither in Mathematics Bachelor nor in Mathematics Master).

Abstract First introduction to main modelling ideas and mathematical tools from mathematical finance
Objective This course gives a first introduction to the main modelling ideas and mathematical tools from mathematical finance. It aims at a double audience: mathematicians who want to learn the modelling ideas and concepts for finance, and non-mathematicians who need an introduction to the main tools from stochastics used in mathematical finance. The main emphasis will be on ideas, but important results will be given with (sometimes partial) proofs.
Content Topics to be covered include

- financial market models in finite discrete time
- absence of arbitrage and martingale measures
- valuation and hedging in complete markets
- basics about Brownian motion
- stochastic integration
- stochastic calculus: Itô's formula, Girsanov transformation, Itô's representation theorem
- Black-Scholes formula
Lecture notes Lecture notes will be sold at the beginning of the course.
Literature Lecture notes will be sold at the beginning of the course. Additional (background) references are given there.
Prerequisites / Notice Prerequisites: Results and facts from probability theory as in the book "Probability Essentials" by J. Jacod and P. Protter will be used freely. Especially participants without a direct mathematics background are strongly advised to familiarise themselves with those tools before (or very quickly during) the course. (A possible alternative to the above English textbook are the (German) lecture notes for the standard course "Wahrscheinlichkeitstheorie".)

For those who are not sure about their background, we suggest to look at the exercises in Chapters 8, 9, 22-25, 28 of the Jacod/Protter book. If these pose problems, you will have a hard time during the course. So be prepared.