1996 SIAM Annual Meeting

Mathematics of Finance: Valuing and Hedging Derivative Securities

Sunday, July 21, 1996
Organizer: Kerry Back
University of Washington


This course is an introduction to mathematical models used in the financial industry to value and hedge securities. The models are based on stochastic calculus. Security values and hedge ratios can be represented as solutions of partial differential equations. The course will develop the basic paradigm and cover a number of applications: the Black-Scholes formula, American options, stochastic-volatility models, forwards, futures, swaps, and foreign-exchange and interest-rate derivative securities.

Who Should Attend

The course is intended for mathematicians, applied mathematicians, physicists, engineers, and statisticians who want to understand the principles underlying the work of their peers on Wall Street (and in investment and trading houses around the world).

Recommended Background

Some knowledge of stochastic calculus, through Brownian motion and Ito's Lemma, would be helpful but is not required. No financial background is necessary.

Course Instructor

Kerry Back is Professor of Finance at the Olin School of Business, Washington University in St. Louis. He is a former Batterymarch Fellow. He is an editor of the Review of Financial Studies and serves on several other editorial boards, including that of Mathematical Finance.


8:30 Registration
9:00-10:00 I. Introduction
A. A catalogue of financial securities
B. Valuation and hedging in lattices
C. Ito's Lemma, Girsanov's Theorem, and the Feynman-Kac formula
10:00-10:30 Coffee
10:30-12:00 II. Option pricing
A. Black-Scholes formula
B. Exotic options
C. Stochastic volatility
12:00-1:30 Lunch
1:30-3:00 III. Term structure of interest rates
A. Affine factor models
B. Matching the current yield curve
C. Interest-rate derivatives
3:00-3:30 Coffee
3:30-5:00 IV. Other issues
A. Forwards, futures, and swaps
B. American options
5:00-5:30 Open Discussion
5:30 Course adjourns

Registration Fees

SIAM Member Non-Member Student
Pregistration (Before 7/8/96) $130 $170 $50
Registration (After 7/8/96) $170 $210 $65

Registration fees include course notes and lunch. To register for the short course, conference or both, complete the preregistration form.

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MMD, 5/20/96