Instructor: Jianfeng Zhang, DRB 228, (213)740-9805 jianfenz@usc.edu http://almaak.usc.edu/~jianfenz
Time and location: WF 2:00 – 3:15pm, SGM601
Office hours: W. 11:00am-2:00pm, or by appointment, in KAP 248 E
Textbook: Arbitrage Theory in Continuous Time, third edition by Tomas Bjork, Oxford University Press, 2009
Reference Books:
Introduction to the Economics and Mathematics of Financial Markets, By Cvitanic and Zapatero, MIT Prss, 2004
Stochastic calculus for finance. I. The binomial asset pricing model, by Shreve, Springer 2004
Stochastic calculus for finance. II. Continuous-time models, by Shreve, Springer 2004
Prerequisites: Math 530A
Exam Dates:
Midterm Exam: 2/24, Friday
Final Exam: 5/7, Monday, 2:00pm-4:00pm
Course Content:
This course is the second part of a two-semester sequence, formerly known as 503, which provides the mathematical theory and probabilistic tools for modeling and analyzing security markets. In this semester, we shall continue with the materials covered in 530A and develop more advanced topics. The main topics include: term structure of interest rates, stochastic optimization, incomplete markets. If time permits, we will also introduce the basic materials of backward stochastic differential equations, which provides a powerful tool for the option pricing in nonlinear framework.
I will use my own lecture notes. For most parts one can find more detailed materials in the textbook and/or the references.
Grading and Examination Policies
30% of the grade will be based on homework assignments, 25% on the midterm exam, and 45% on the final exam. The grade cutoffs will be decided after the final exam, based on the students’ overall achievements.
The 75 minutes Midterm Exam will be given in regular class time. The Final Exam will be comprehensive, with an emphasis on the materials covered after the Midterm Exam. All exams are closed book, but students are allowed to bring one sheet of formulas.
Homework problems will be assigned biweekly. No late homework will be accepted, but missed homework with valid reasons can be excused. You are permitted and even encouraged to discuss homework problems with classmates. However, you are not permitted to copy solutions from others.
Feedback and Questions
It is extremely important for me to get feedback and questions, both inside and outside class. You are very welcome to visit me during my office hours, and/or make appointments to see me at other time.