Center for Financial Engineering, Suzhou University, Suzhou, China – Autumn Semester 2009/2010

Instructor: Professor Srdjan Stojanovic, Ph.D., Department of Mathematical Sciences, University of Cincinnati, Cincinnati OH, 45221-0025, U.S.A.

e-mail: srdjan@math.uc.edu,

web site: http://math.uc.edu/~srdjan/

Suzhou phone number: 65242435

Office:219 Weige Building

Office hours: by appointment (send me an e-mail or call), or just stop by.

1 Introduction: SDEs and PDEs

2 Simple economies: multi-tradable, multi-factor econometric SDE models

3 Optimal portfolio theory

4 Neutral pricing

5 Pricing in complete and incomplete markets

6 Risk premium, i.e., the market price of risk

7 The most conservative hedging

8 Relaxed hedging

9 Indifference pricing

10 The relationship between neutral and indifference pricing: liquid vs. illiquid contracts

11 Interest rates, bonds, interest rate derivatives

12 SDE models for Foreign Exchange (FX)

13 Market risk aversion and FX

14 FX derivatives: futures and options

15 Public equity: when does the Miller-Modigliani theorem fail, interest rate risk, etc.

16 Private equity

Lecture notes: lecture notes will be distributed weekly; they are to become a book to be published by Springer; student’s assistance in further editing of notes, finding misprints, errors, etc. would be appreciated and acknowledged.

Class format: the class language is English – sorry, I don’t speak Chinese, but would like to learn; the classes will consist of teacher’s lectures and student home works, projects, and other presentations; questions and discussions are always very welcome, before, during, and/or after the class; in particular, if English is a problem, always feel free to ask a question – there are students in the class who can translate very well.

Main references:

1 S. Stojanovic, Computational Financial Mathematics using Mathematica, Birkhauser, Boston, 2003.

2 S. Stojanovic, Advanced Financial Engineering for Interest Rates, Equity and FX, GARP (lecture notes), New York, 2007.

3 further references available on the teacher''s web site above.

Computer software: for home works and projects sometimes it will be necessary to use some high level programming language; the teacher uses Mathematica (http://www.wolfram.com), and some Mathematica code will be presented in the lecture notes and lectures, but only as an illustration – it is not necessary for following the lectures; Suzhou University might have a site license for Mathematica (go to http://www.wolfram.com/siteinfo/ using the campus network).

Further research: Let me know if you would like to get involved into some related research project that goes beyond the class home works and class projects.