Investment Mathematics

Catalog description

This course introduces the basics of investment and financial pricing based on rigorous mathematical reasoning. It consists of two parts. In the first part, students will learn how to construct a portfolio based on the mean-variance principle, the capital asset pricing model, multi-factor model and behavioral finance. The second part is on financial derivatives: a put-call parity, the binomial model for pricing European and American contingent claims, Black-Scholes framework, delta-hedging, and exotic options. This course will prepare students for the actuarial science exam in Investment and Financial Markets (IFM) of the Society of Actuaries or Exam 3F of the Casualty Actuarial Society. If time permits, the class will discuss the fundamental difference between Actuarial Pricing and Financial Pricing and how to combine them to price hybrid products such as Variable Annuities.