CMU Campus
Undergraduate Programs      
Undergraduate Home Admissions and Financial Aid Research Opportunities Other Opportunities Degree Programs Course Descriptions Current Courses Honors Program Applying to Graduate School After Graduation Math Links
Undergraduate Courses 21-270
Introduction to Mathematical Finance

Spring: 9 units

This is a first course for those considering majoring or minoring in Computational Finance. The theme of this course is pricing derivative securities by replication. The simplest case of this idea, static hedging, is used to discuss net present value of a non-random cash flow, internal rate of return, and put-call option parity. Pricing by replication is then considered in a one-period random model. Risk-neutral probability measures, the Fundamental Theorems of Asset Pricing, and an introduction to expected utility maximization and mean-variance analysis are presented in this model. Finally, replication is studied in a multi-period binomial model. Within this model, the replicating strategies for European and American options are determined. 3 hours lecture.

Introduction to Mathematical Finance is a prerequisite for 21-370 Discrete-Time Finance.