401-3913-01L  Mathematical Foundations for Finance

SemesterAutumn Semester 2014
LecturersJ. Teichmann
Periodicityyearly course
Language of instructionEnglish
CommentA 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).

AbstractFirst introduction to main modelling ideas and mathematical tools from mathematical finance
ObjectiveThis 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.
ContentTopics 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 notesLecture notes will be sold at the beginning of the course.
LiteratureLecture notes will be sold at the beginning of the course. Additional (background) references are given there.
Prerequisites / NoticePrerequisites: 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.