Financial Mathematics II – Applied Mathematics of Corporate Finance
Math 369
Spring 2008
Classes: MW: 3:00 – 4:45 Instructor: James G. Bridgeman, FSA
MSB215 MSB408
860-486-8382
bridgeman@math.uconn.edu
Office Hours: W 11:00 –
12:00 websites:
M/Th
10:00 – 11:00 instructor’s www.math.uconn.edu/~bridgeman/index.htm
Th: 2:00
– 3:00 course: www.math.uconn.edu/~bridgeman/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.)
Student Solutions Manual (4th ed.)
Responsible for substantial additional non-text material presented in class
Various resources as referenced in the text, plus
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%
Take-home Tests 30%
Final Exam 35%
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 week 50 minutes will be devoted to derivative securities and option pricing, proceeding at a separate pace, usually on Mondays |
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Jan. 21 |
introduction: decisions about value |
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Jan. 28 |
financial statement analysis: where and when is the cash? expected cash flow; DCF valuation |
handout Ch. 2A-H |
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Feb. 4 |
closed form financial analysis |
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Feb. 11 |
free form financial analysis |
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Feb. 18 |
risk: variance of cash flow |
Ch. 5A-D |
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Feb. 25 |
capital asset pricing model (CAPM) |
Ch. 5E-F, 6A-H |
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Mar. 3 |
market risk premium; arbitrage pricing theory (APT) |
Ch. 6I-M |
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March 17 |
market efficiency: ideology, cost of information |
Ch.10 |
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March 24 |
evidence of market efficiency |
Ch. 11 |
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March 31 |
corporate tax effect on value |
14C |
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April 7 |
financing decisions: capital structure, MM theory |
Ch. 15A-E |
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April 14 |
financing decisions: capital structure, practical considerations |
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April 21 |
dividend policy: cash plus information, effect on value |
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April 28 |
real options - where value comes from |
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Final Exam TBD week of May 5 to May 10 |
All |
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A paper will be due on May 2. 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. You will submit a written topic selection on March 19 and a written outline on April 16.
Assignments
Every week text exercises will be assigned, not for collection and grading but to aid with your mastery of the material. You can check your own work against the solutions manual. Completion of this work will be assumed on take-home tests and on the final exam. Finally, background readings may be assigned in text sections not referenced in the syllabus. These will not be covered on tests or the exam, but should be read to enhance your understanding of the material.
Take-home Tests
One or two take-home tests will be assigned during the course of the semester.
Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.