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Introduction to capital markets and modern portfolio theory, including the organization and operation of securities markets, the Efficient Market Hypothesis and its implications, the Capital Asset Pricing Model, the Arbitrage Pricing Theory and more general factor models. Common stocks and their valuation, statistical analysis, and portfolio selection in a single-period, mean-variance context will be explored along with its solution as a quadratic program. Fixed income securities and their valuation, statistical analysis, and portfolio selection. Discussion of the development and use of financial derivatives. Whenever practical examples will use real market data. Numerical exercises and projects in a high-level programming environment will also be assigned.Ę Prerequisites: AMSĘ505 or AMSĘ510, and AMSĘ507. 3 credits.
Required texts and software (required):
The following texts provides useful background. They are not required texts:
Financial resources must be managed in the face of uncertain investmemt performance and future consumption. The risk and reward of available investments must be modeled and estimated. These insights must then be translated into a set of specific investment decisions. All of this must be done in the context of the objectives and constraints imposed by both the organization and the larger legal and economic environment it finds itself in.
We will cover the Chapters 1 through 16 of Luenberger's text. This will cover the basics of financial instruments and markets and address the issues involved in allocating financial resources in the face of an uncertain future. To introduce the student to Mathematica we will also cover selected material in Don's text.
The lectures will develop the mathematical foundations required for successful completion of the course. We will also introduce many economic concepts and practical applications through examples worked out during class. Homework assignments and workshops, however, play a key role.
Homework assignments and workshops will be used to further develop the material covered during class, including many important practical applications, and so will introduce important new content. Homework assignments are due the first class of the week after assignment. In addition to the weekly assignments, students will be assigned two workshop assignments that they will have two to three weeks to complete. All assignments must be submitted by email. Homework assignments are submitted to the course grader, Xiaochu Zhang, at xczhang@ams.sunysb.edu. Workshops are submitted to the course instructor, Robert J. Frey, at frey@ams.sunysb.edu. The subject line of the email must begin with AMS-511 and your student ID number followed by a brief description of the submission, e.g.,
AMS-511 123456789 Homework 3A
Examinations
There will be two examinations, a mid-term and a final. For in-class examinations students will be able to bring in an 8.5" x 11" sheet of paper with whatever content he or she desires for use during the test; however, this sheet must be generated by the student him- or herself. Students may use calculators during the examinations.
Homework assignments will be graded Pass-Fail and the workshops and examinations will be graded A-B-C-F. The contribution of each to the final grade is as follows:
Positive trends in a student's performance will, however, receive due consideration.
Throughout our time together the sooner you inform me of any problem, personal or academic, which may affect your attendance or performance, the better the chance we have of solving it together.
Americans with Disabilities Act (ADA) Notification: If you have a physical, psychological, medical or learning disability that may impact your course work, please contact Disability Support Services. They will determine with you what accommodations are necessary and appropriate. All information and documentation is confidential.
Students who require assistance during emergency evacuation are encouraged to discuss their needs with their professors, Disability Support Services, and Environmental Health and Safety.
The schedule planned for this semester is listed below; however, this schedule will be adjusted as needed throughout the semester if certain topics take up more or less time than planned. The letter "I" is used to indicate Investment Science, and students must read the chapters indicated for each week before coming to class. The letter "S" refers to Schaum's Outline, and these readings are suggested.
Under the "Documents" heading links for any "Notes" and "Exercises" will be updated before each class. Links for "Solutions" of assignments and examinations will be updated after their respective due dates.
The "Notes" below are supplementary material and exercises intended to amplify or extend the content presented in the main text and classroom lectures. They are not a substitute for studying the text or attending class. |
Week - Class |
Documents |
Coverage |
Assignments & Comments |
Content |
01 - A 31 Aug 2009 |
I: 1 & 2 S: 1 |
I: 2 (1, 3 & 8) |
Theory of Interest Mathematica: Introduction |
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01 - B 02 Sep 2009 |
I: 3 S: 2 |
I: 3 (3, 10 & 15) |
Fixed Income Securities Mathematica: Basics |
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02 - A 07 Sep 2009 |
Labor Day - No Classes | |||
02 - B 09 Sep 2009 |
I: 4 S: 3 |
I: 4 (2, 6, & 14) | Term Structure of Interest Mathematica: Lists |
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03 - A 14 Sep 2009 |
I: 4 S: 12 |
Term Structure of Interest Mathematica Linear Algebra |
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03 - B 16 Sep 2009 |
I: 5 S: 4 & 5 |
I: 5 (2, 4 & 12) | Interest Rate Analysis Mathematica Graphics |
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04 - A 21 Sep 2009 |
I: 5 S: 6 & 7 |
Interest Rate Analysis Mathematica: Algebra |
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04 - B 23 Sep 2009 |
I: 6 S: 8 & 9 |
I : 6 (2, 4, 8) | Portfolio Theory Mathematica: Calculus |
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05 - A 29 Sep 2009 |
I: 6 S: 10 |
Correction Day: Tuesday Follows Monday's Schedule | Portfolio Theory Mathematica: Calculus |
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05 - B 30 Sep 2009 |
I: 7 S: A.1 |
I: 7 (2, 6) | Capital Asset Pricing Model Mathematica: Programming |
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06 - A 05 Oct 2009 |
I: 7 S: A.3 |
Capital Asset Pricing Model Mathematica: Programming |
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06 - B 07 Oct 2009 |
I: 8 | I: 8 (2, 6, 8) |
Factor Models - Theory | |
07 - A 12 Oct 2009 |
I: 8 | Workshop 1 Assigned | Factor Models - Estimation | |
07 - B 14 Oct 2009 |
I: 9 | I: 9 (2, 6, 10, 14) |
Utility Theory |
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08 - A 19 Oct 2009 |
I: 9 | Applications of Utility | ||
08 - B 21 Oct 2009 |
Sample | Review |
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Review Chapters 1 to 9 |
09 - A 26 Oct 2009 |
Midterm | |||
09 - B 28 Oct 2009 |
I: 10 | I: 10 (6, 8, 10) |
Forwards, Futures & Swaps | |
10 - A 02 Nov 2009 |
I: 10 | Workshop 1 Due | Forwards, Futures & Swaps |
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10 - B 04 Nov 2009 |
I: 11 | I: 11 (4, 6, 10) | Asset Dynamics | |
11 - A 09 Nov 2009 |
I: 11 | Asset Dynamics | ||
11 - B 11 Nov 2009 |
I: 12 | I: 12 (4, 10) | Options Theory | |
12 - A 16 Nov 2009 |
I: 12 | Options Theory | ||
12 - B 18 Nov 2009 |
I: 13 | Black-Scholes | ||
13 - A 23 Nov 2009 |
Workshop 2 | I: 13 | Workshop 2 Assigned | Exotic Options |
13 - B 25 Nov 2009 |
Thanksgiving - No Classes | |||
14 - A 30 Nov 2009 |
I: 14 | I: 14 (6, 7) |
Interest Rate Derivatives | |
14 - B 02 Dec 2009 |
I: 15 | I: 15 (2, 6) |
Optimal Portfolio Growth | |
15 - A 07 Dec 2009 |
I: 16 | I: 16 (8) | Investment Evaluation | |
15 - B 09 Dec 2009 |
Review | Workshop 2 Due | Review Chapters 1 - 16 | |
Final 21 Dec 2009 |
Final | 5:15 PM to 7:45 PM Physics P-113 |
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