00675 - Financial Mathematics

Learning outcomes

The mathematics of financial transactions are presented to students of finance, business and insurance, from simple and and compound interest to borrows and bond. Properties of financial markets, prices an interest rates structures are introduced.

Course contents

0. Introduction.

    Caracteristic and properties of money markets.

1. Elementary financial transactions: mathematical foundations of borrowing and lending.

    Accumulated and discounted values.

    Simple and compound interest; continuous compoundig.

    Nominal and effective rates of interest.

    Equivalent interest rates.

2. Introduction to annuities.

    Basic annuity functions: accumulated and discount values.

    Direct and inverse problems.

3. Applications to financial transactions.

   Mortgages and borrows.

   Amortization by an ordinary level annuity.

   Amortization with constant payments on principal.

   Amortization schedules. Variable interest rates.

   Bonds: prices and yeld rates.  Internal rate of return.

   Sensitivity analysis:  duration, volatility, convexity.

4. The term structure of  interest rates.

    Spot and forward prices and interest rates.

Readings/Bibliography

P.Zima, R.L.Brown - Mathematics of finance, McGraw-Hill, 1984.

M.V.Butcher, C.J. Nesbitt - Mathematics of compound interest, Edwards Brothers Inc., Ann Arbour, Michigan,1991.

Teaching methods

Classroom lessons.  Theoretical financial problems will be best understood through the use of several examples.

A limited level of mathematical knowledge is assumed at the start of the course.

Assessment methods

Written examination about theory and practical exercises.

Teaching tools

Blackboard, overhead projector and transparency films.

Copy of teaching transparency films are available.  See "Cartoleria Tecnica", 1, Agabiti square, Rimini.

Office hours

See the website of Emanuela Maria Assunta Maresi