MTH 210 "Introduction to Financial Mathematics"

Time	Location	Instructor	Office Hours	E-mail
MW 1400-1515	Hylan 201	Xuwen Chen	MW 1140-1230 @ Hylan 1018 or by appointment.	xuwenchen@rochester.edu

Syllabus: Mathematical concepts and techniques underlying finance theory; arbitrage pricing theory and option pricing.

Prerequisites: FIN 205 & 206 and (MTH 143 or 162) and (one of STT 211, 212, 213, ECO 230, or MTH 201). The prerequisites are strictly enforced depending on the major as instructed by some majors.

Textbook: Stephen Blyth, An Introduction to Quantitative Finance

Grading: Homework 30%, Midterm 30%, Final 40%.

Homework

Homework is assigned on GRADESCOPE every week on Wednesday, starting 9/4. It is due in one week. In order to ensure that assignments are graded promptly, and to discourage students from falling behind, LATE ASSIGNMENTS WILL NOT BE ACCEPTED UNDER ANY CIRCUMSTANCES. However, in recognition of the fact that unavoidable issues sometimes arise, the lowest two homework grades of each student's homework grades (including zeros for unsubmitted assignments) will be dropped when calculating final semester grades. Despite this policy, you should complete every assignment, even if you miss a deadline, because understanding the homework will help you perform well on exams.

There will be about 10 problems per homework. Each of these problems is worth 10 points.

Exams

The Midterm will be an in-class exam on 10/16/2024. Materials covered are up to 10/9/2024. So you have one week to review. This formula sheet is allowed. HWs before midterm can be found here. Solution to the Midterm can be found here.

The Final is scheduled at Hylan 201, 1600-1900, 12/07/2024.  (Hand-written wet-ink note, on a piece of double-sided A4 or Letter paper, is allowed.)

The final exam will have two parts. Part I’s score replaces the midterm score in the grade computation if Part I’s score is higher than the midterm score. The final’s score is still the sum of Part I and Part II. (That is, even you are very satisfied with your midterm score, you still need to do Part I of the final for that part of the credit of the final.)

In the exams, there is a chance that you are asked a HW problem. If your original HW solution was wrong but graded right and you provide that solution in the exam, your solution in the exam will be graded as it is supposed to be but your HW grade will stay the same.

Some old exams are available here. (Please be aware that “Past performance is no guarantee of future results" usually written in very small font but usual font here.)

Course policies

1. We use absolute grading system. The cut-offs are 90% for A, 85% for B+, 80% for B, 75% for C+, 70% for C, 65% for D+, 60% for D. That is, if everyone gets above 90%, then everyone gets an A. (You can also choose, before taking the final, to use a system which has the minus grade: 93.3% for A, 90% for A-, 86.7% for B+, 83.3% for B, 80% for B-, 76.7% for C+, 73.3% for C, 70% for C-, 66.7% for D+, 63.3% for D, 60% for D-. Just let the instructor know before taking the final.)

2. Incomplete "I" grades are almost never given. The only justification is a documented serious medical problem or a genuine personal/family emergency. Falling behind in this course or problems with workload on other courses are not acceptable reasons.

3. You are responsible for knowing and abiding by the University of Rochester's academic integrity code. Any violation of academic integrity will be pursued according to the specified procedures.

（Tentative） Weekly schedule:

Week of	Topic	Reading assignment	Homework
8/26	Basic probability
9/2	Basic probability, time value of money, interest rates and compounding.	Chapter 1	Homework 1 (due 9/11)
9/9	Zero coupon bonds, annuities, Amortized loans, basics of stocks, bonds, and foreign exchange.	Chapter 1	Homework 2 (due 9/18)
9/16	Derivative contracts, forward contracts, Arbitrage, replicating portfolios, forward on asset paying no income.	Chapter 2	Homework 3 (due 9/25)
9/23	forward on asset paying known income, value of forward contract, forward on stock paying dividends	Chapter 2	Homework 4 (due 10/2)
9/30	Forward on currency, Forward zero coupon bond prices	Chapter 3.1-3.2	Homework 5 (due 10/9)
10/7	Forward interest rates, libor, Forward rate agreements and forward libor, Swap definition, Value of floating and fixed cashflows, Forward swap rate and swap value, Spot-starting swaps.	Study for Midterm
10/14	In class Midterm @ 10/16/2024	Chapter 3.5-4.4
10/21	Swaps as difference between bonds, Physical versus cash settlement, Futures definition, Futures examples.	Chapter 5.1-5.2	Homework 6 (due 10/30);
10/28	Hedging with futures, Futures versus forward prices, Option definitions, Put-call parity	Chapter 6.1-6.2, 7.1-7.2	Homework 7 (due 11/6);
11/4	Bounds on call prices, Call and put spreads, Call butterflies, Digital options, Binomial Tree	Chapter 7.3, 7.4, 7.5, 7.6, 8.1, 8.2	Homework 8 (due 11/13);
11/11	Binomial Tree, Replicating and arbitrage using the binomial tree, Multiple Time Steps	Chapter 8.3, 8.4, 9.1	Homework 9 (due 11/20);
11/18	Martingales, Numeraires, Fundamental Theorem of Asset Pricing	Chapter 9.2-9.5	Homework 10 (due 11/27);
11/25	Lognormal limit of binomial tree	Chapter 10.1-10.2	Homework 11 (due 12/4);
12/2	Properties of Black-Scholes model, Delta and vega, Volatility	Chapter 10.3-10.6
12/9	TBA