This is the key introductory course for the financial mathematics program and introduces the major topics of investment finance. The investment universe, its context of markets, and the flow of global capital are introduced. Details of equities, interest, bonds, commodities, forwards, futures, and derivatives are introduced to varying degree. The concepts of deterministic cash flow stream, valuation, term structure theories, risk, and single- and multi-period random cash flows are presented. Here the neoclassical theory of finance is introduced including the topics of efficient markets, the risk-return twins leading to the mean variance Capital Asset Pricing Model (CAPM), the efficient frontier, the intertemporal models, and Arbitrage Pricing Theory (APT). Some introductory models of asset dynamics (including the binomial model), basic options theory, and elements of hedging are also included in this course.
This course is the same as 550.442 offered by through the full-time Applied Mathematics & Statistics department for the residence Master of Science in Engineering in Financial Mathematics.