Courses Catalogue

Syllabus of the course: Mathematics of Finance I


In this web page we provide the syllabus of the course Mathematics of Finance I, offered by the Department of Physics.
The list of the courses offered during the current accademic year is available here.
The list of all courses offered by the Department of Physics is available here.

CodeΦ-457
TypeC
ECTS6
Hours3
SemesterWinter
InstructorG. Neofotistos
ProgramFriday, 09:00-12:00, Αmphitheater Α
Web page
Goal of the courseThe course introduces science students to the main concepts of financial derivatives, financial risk and risk management, as well as to the quantitative methods of pricing of financial derivatives, and risk measurement and management (Value-at-Risk methodology). As hands-on practice, students must a) form a (virtual) portfolio of real assets, monitor its risk, and report weekly on its performance (returns), b) forecast the market prices of certain assets, and c) create and price their own call and put options.
SyllabusIntroduction to financial systems, markets, and financial derivatives. Futures and options contracts. Swaps. Types of options and option positions. Option pricing methods: binomial-tree methods and the Black-Scholes model; assumptions about how stock prices evolve (Wiener process, Ito process), expected return, volatility, risk-neutral valuation. Hedging risk (naked and covered positions, delta-hedging). The Value-at-Risk (VaR) measure. VaR of a portfolio of assets; estimating volatilities and correlations. Liquidity risk, credit risk. The Basle Accord.
Bibliography1) OPTIONS, FUTURES, and OTHER DERIVATIVES, J. Hull, 6th edition, Prentice Hall, 2008.
2) VALUE AT RISK - The New Benchmark for Controlling Derivatives Risk, Philippe Jorion, McGraw-Hill, 1997.
3) INTRODUCTION TO ECONOPHYSICS - Correlations and Complexity in Finance, R. N. Mantegna and H. E. Stanley, Cambridge University Press, 1999.
4) QUANTITATIVE METHODS IN FINANCE, T. Watsham & K. Paramore, International Thomson Business Press, 1998.

University of Crete - Department of Physics  - Voutes University Campus - GR-71003 Heraklion, Greece
phone: +30 2810 394300 - fax: +30 2810 394301