(Scroll down for web links!)
In the past 15 years there has been an explosion in the mathematical
development of option pricing theory. Everyone and his or her
grandmother has written an introductory text, and many of them
are good (which must be grandma's influence)!
There is one text that you must own and learn thoroughly
if you are really interested in going on in this
field. It is the standard business school text and practitioner's
This is John C. Hull, Options, Futures, and Other Derivatives,
Prentice-Hall. The current edition is the sixth edition.
There is a copy on reserve for this course in the
Mathematics Library in the Hill Center,
and I will indicate sections to read, as we go along. I highly
recommend consulting Hull periodically during the course.
Two other books are on reserve. However, to take them out
you must go to the SERC Reading Room in the SERC Building,
not the Mathematics Library. These books are
Luenberger's book is a broad introductory survey of financial mathematics
covering more than options pricing. It is at about the level of
640:495, though a bit less mathematical.
The book of Capinski and Zastawniak covers less,
but is exceptionally clear and understandable.
They are on reserve for you to explore as additional reading, should
- D. Luenberger, Investment Science, Oxford, 1997.
- M. Capinski and T. Zastawniak, Mathematics for Finance;
An Introduction to Financial Engineering, Springer Undergraduate
Mathematics Series, 2004.
This course should prepare you for
for what is becoming the standard introduction to the higher
level mathematical theory of financial derivatives.
This is the two volume series by Steven Shreve,
Stochastic Calculus and Finance I: The Binomial Asset Pricing Model
and Stochastic Calculus and Finance II: Continuous-time
published by Springer-Verlag in their Mathematics for Finance
II. On-line Resources
You can learn a lot about derivatives and options on the web.
We will refer to the following sites in lecture and in problem
You may also wish to check out the Chicago Board Options Exchange,
And you can probably find other good sites with information about
This is the web site of the American Stock Exchange, which
runs an options exchange. IF you click on ``Options" on
the main menu, you will find links to educational material,
tutorials, and you will be able to get option price quotes.
The site has an excellent dictionary (click on the link at the
bottom of the home page) for the definition of many terms
and concepts of finance.
This site contains a glossary of the terms and concepts of
finance. Many of the entries are extensive and are generally
well-written and clear.
This is a site for options education sponsored by the Options
Industry Council. One of your early assignments is to read
the material provided for the class on