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Math 179: General Course Outline

Catalog Description

179. Advanced Topics in Financial Mathematics. (4) Lecture, three hours; discussion, one hour. Requisites: courses 174E. Continuation of Mathematics of Finance. In depth study of risk measures and the instruments of risk management in investment portfolios and corporate financial structure. Exotic and real options, value at risk, mean-variance analysis, portfolio optimization, risk analysis, capital asset pricing model, market efficiency and the Modigliani-Miller theory. P/NP or letter grading.

Textbook

Hull, J. Optios., Futures and Other Derivatives, 10th edition. Pearson, 2018.

Berk, J. and P. DeMarz., Corporate Finance, 4th edition. Pearson, 2017.

White, Toby AMeasures of Investment Risk, Monte Carlo Simulation, and Empirical Evidence on the Efficient Markets Hypothesi Society of Actuaries, 2018. Education and Examination Committee of the Society of Actuaries ? Investment and Financial Markets Study Note.
https://www.soa.org/Files/Edu/2018/ifm-21-18-study-note.pdf

Schedule of Lectures

Lecture Section Topics

1

Hull p.221-2, p.237-8, p.249, p.343-5, p.460-3

Effect of Dividends on stock prices and option valuation

2

Hull 26.1-26.3, p.598-600

Exotic Options 1

3

Hull 26.4-26.7, p.601-603

Exotic Options 2

4

Hull 26.8-26.11, p.603-609

Exotic Options 3

5

Hull 26.12-26.14, p.609-612

Exotic Options 4

6

Hull 22.1-22.3, p. 494-504

Value at Risk

7

Hull 22.4-22.6, p. 504-512

Value at Risk

8

Hull 22.7-22.9, p. 512-517

Value at Risk
Second Reading: White, SOA Study Note IFM 21-18, Sections 1 and 2

9

Hull 28.1-28.3, p. 655-660

Market Price of Risk

10

Hull 35.1-35.3, p. 792-796

Real Options

11

Hull 35.4-35.5, p. 796-803

Real Options

12

Berk & DeMarzo 10.1-10.4, p. 318-335

Risk, Return, Diversification

13

Berk & DeMarzo 10.5-10.8, p. 335-350

Risk, Return, Diversification

14

Berk & DeMarzo 11.1-11.3, p. 357-369

Portfolio Optimization: Variance and Covariance

15

Berk & DeMarzo 11.4-11.5, p. 369-381

Portfolio Optimization: Risk versus Return

16

Midterm

17

Berk & DeMarzo 11.6-11.8, p. 381-395

Efficient Portfolio, Capital Asset Pricing Model and Risk Premium

18

Berk & DeMarzo 12.1-12.2, p. 404-413

Cost of Capital: Equity Cost and Market Portfolio

19

Berk & DeMarzo 12.3-12.4, p. 407-420

Beta Estimation and Debt Cost of Capital

20

Berk & DeMarzo 12.5-12.7, p. 420-433

Project Cost and Project Risk
Second Reading: White, SOA Study Note IFM 21-18, p. 1-7

21

Berk & DeMarzo 13.1-13.4, p. 445-455

Role of Investor Behavior

22

Berk & DeMarzo 13.5-13.6, p. 456-469

Market Portfolio and Efficiency

23

Berk & DeMarzo 13.7-13.8, p. 469-479

Multifactor Models of Risk
Second Reading: White, SOA Study Note IFM 21-18, p. 1-7

24

Berk & DeMarzo 14.1-14.2, p. 487-498

Modigliani-Miller: Equity vs. Debt Financing

25

Berk & DeMarzo 14.3-14.5, p. 498-511

Leverage, Risk, Cost of Capital

26

Berk & DeMarzo 8.5, p. 258-265

Project Analysis: Sensitivity, Break-Even, Scenario
Second Reading: White, SOA Study Note IFM 21-18, p. 7-18

27

Berk & DeMarzo 16.1-16.3, p. 551-561

Default, Bankruptcy, and Distress

28

Berk & DeMarzo 16.4-16.6, p. 562-575

Optimal Capital Structure and Leverage

29

Berk & DeMarzo 16.7-16.9, p. 575-588

Agency Costs and Asymmetric Information

30

Review/Leeway