Instructor: Jianfeng Zhang, KAP 248E, (213)740-9805 jianfenz@usc.edu http://almaak.usc.edu/~jianfenz
Time and location: WF 2:00 – 3:15pm, KAP 140
Office hours: W F 11:00am-12:30pm, or by appointment, in KAP 248 E

Textbooks:
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
Reference Books:
Arbitrage Theory in Continuous Time, 3rd edition by Tomas Bjork, Oxford University Press, 2009
Methods of Mathematical Finance, By Karatzas and Shreve, Springer, New York, 1998

Prerequisites: Math 530A

Exam Dates:
Midterm Exam: 3/15, Friday
Final Exam: 5/13, Monday, 2:00pm-4:00pm

Course Contents:
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, closed notes, 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.

Statement for Students with Disabilities: Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me (or to TA) as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m.-5:00 p.m., Monday through Friday. The phone number for DSP is (213) 740-0776.

Statement on Academic Integrity: USC seeks to maintain an optimal learning environment. General principles of academic honesty include the concept of respect for the intellectual property of others, the expectation that individual work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect one’s own academic work from misuse by others as well as to avoid using another’s work as one’s own. All students are expected to understand and abide by these principles. Scampus, the Student Guidebook, contains the Student Conduct Code in Section 11.00, while the recommended sanctions are located in Appendix A: http://www.usc.edu/dept/publications/SCAMPUS/gov/. Students will be referred to the Office of Student Judicial Affairs and Community Standards for further review, should there be any suspicion of academic dishonesty. The Review process can be found at: http://www.usc.edu/student-affairs/SJACS/.