Financial Mathematics II – Applied Mathematics of Corporate Finance
Math 369/289
Fall 2007
Classes: MW: 3:00 – 4:45 Instructor: James G. Bridgeman, FSA
MSB307 MSB408
860-486-8382
bridgeman@math.uconn.edu
Office Hours: W 11:00 –
12:00 websites:
M/Th 10:00 – 11:00 instructor’s math.uconn.edu/~bridgeman
Th/F: 2:00 – 3:00 course: math.uconn.edu/~bridgeman/math369f07/index.html
Or by appointment
Context for the Course
Required for the
Professional Master’s degree in Applied Financial Mathematics
Certified for SOA/CAS Validation by Educational Experience (VEE) in Corporate Finance
Contains some material relevant for SOA exams FM and MFE
Introduction to the Applied Mathematics of Corporate Finance and Introduction to Derivatives and Option Pricing Models
Copeland et al, Financial Theory and Corportate Policy (4th
ed.)
Responsible for substantial additional non-text material presented in class
Various resources as referenced in the text
Ho & Lee, The
Chew, The New Corporate
Finance/where theory meets practice (3rd ed.)
McDonald, Derivative Markets (2nd ed.)
Megginson, Corporate
Finance Theory
Shreve, Stochastic Calculus for Finance I: Binomial Asset Pricing Model
Brealey Myers Allen, Principles of Corporate Finance (8th ed.)
Panjer (ed.), Financial Economics
Gollier, The Economics of Risk and Time
Term Paper 35%
Cases & Assignments 15%
Mid-term Exam 20%
Final Exam 30%
Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.
Outline & Intended Pace
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Week of |
Topic(s) |
Material |
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all semester |
each Monday a 50 minute tutorial on derivative securities will proceed at a separate pace |
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8-27 |
introduction |
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9-3 |
decisions about value; expected cash flow; DCF valuation |
handout Ch. 2A-H |
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9-10 |
financial statement analysis – where and when is the cash? |
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9-17 |
risk; variance of cash flow |
Ch. 5A-D |
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9-24 |
capital asset pricing model (CAPM) |
Ch. 5E-F, 6A-H |
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10-1 |
market risk premium; arbitrage pricing theory (APT); market efficiency |
Ch. 6I-M, 10A-D |
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10-8 |
market efficiency: cost of information, evidence |
Ch. 10E-G, 11A-F |
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10-15 |
market efficiency: evidence; corporate tax effect on value |
Ch.11G-H,14C |
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10-22 |
financing decisions: capital structure, MM theory |
Ch. 15A-E |
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10-29 |
financing decisions: capital structure, practical considerations |
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11-5 |
financing decisions: dividend policy: cash plus information |
Ch. 16A-F |
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11-12 |
dividend policy: effect on value; real options – a new approach to value |
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11-26 |
real options - where does value come from? |
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12-3 |
review and/or extra topics |
TBD |
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Final Exam TBD week of 12-10 to 12-15 |
All |
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A paper will be due on November 30. You may choose any of the main topics in the syllabus (i.e. sections in the text or from class notes) and prepare a paper covering the topic in more depth, or presenting extensions of the material in the text or class notes, after consulting outside references. Alternatively, you may choose a topic from sections of the text not covered in the syllabus and explain how it works, including its connections with the material covered in the syllabus.
Assignments
Significant business cases or sets of text exercises will be assigned for collection and grading occasionally during the semester. In addition, every week text exercises will be assigned not for collection and grading but to aid with your mastery of the material. Completion of this work will be assumed on both the mid-term and the final exams. Finally, background readings may be assigned in text sections not referenced in the syllabus. These will not be covered in exams, but should be read to enhance your understanding of the material.
Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.