University of Connecticut

Financial Mathematics II – Applied Mathematics of Corporate Finance

Math 369/289

Fall 2007

Classes: MW: 3:00 – 4:45                                   Instructor: James G. Bridgeman, FSA

MSB307                                                MSB408

860-486-8382 bridgeman@math.uconn.edu

Office Hours:    W 11:00 – 12:00                      websites:

M/Th 10:00 – 11:00                       instructor’s math.uconn.edu/~bridgeman

Th/F: 2:00 – 3:00                         course: math.uconn.edu/~bridgeman/math369f07/index.html

Or by appointment

Context for the Course

Required for the Professional Master’s degree in Applied Financial Mathematics

Certified for SOA/CAS Validation by Educational Experience (VEE) in Corporate Finance

Contains some material relevant for SOA exams FM and MFE

# Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance and Introduction to Derivatives and Option Pricing Models

# Required Text

Copeland et al, Financial Theory and Corportate Policy (4th ed.)

Responsible for substantial additional non-text material presented in class

Various resources as referenced in the text

Ho & Lee, The Oxford Guide to Financial Modeling

Chew, The New Corporate Finance/where theory meets practice (3rd ed.)

McDonald, Derivative Markets (2nd ed.)

Megginson, Corporate Finance Theory

Shreve, Stochastic Calculus for Finance I: Binomial Asset Pricing Model

Brealey Myers Allen, Principles of Corporate Finance (8th ed.)

Panjer (ed.), Financial Economics

Gollier, The Economics of Risk and Time

Term Paper                            35%

Cases & Assignments        15%

Mid-term Exam                      20%

Final Exam                             30%

Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.

Week of

Topic(s)

# Material

all semester

each Monday a 50 minute tutorial on derivative securities will proceed at  a separate pace

Ch. 7

8-27

introduction

9-3

decisions about value; expected cash flow; DCF valuation

handout

Ch. 2A-H

Ch. 14A

9-10

financial statement analysis – where and when is the cash?

Ch. 14B

9-17

risk; variance of cash flow

Ch. 5A-D

9-24

capital asset pricing model (CAPM)

Ch. 5E-F, 6A-H

10-1

market risk premium; arbitrage pricing theory (APT); market efficiency

Ch. 6I-M, 10A-D

10-8

market efficiency: cost of information, evidence

Ch. 10E-G, 11A-F

10-15

market efficiency: evidence; corporate tax effect on value

Ch.11G-H,14C

10-22

financing decisions: capital structure, MM theory

Ch. 15A-E

10-29

financing decisions: capital structure, practical considerations

Ch. 15F-L

11-5

financing decisions: dividend policy: cash plus information

Ch. 16A-F

11-12

dividend policy: effect on value; real options – a new approach to value

Ch. 16G-H, 9A-F

11-26

real options -  where does value come from?

Ch. 9G-J

12-3

review and/or extra topics

TBD

Final Exam TBD week of 12-10 to 12-15

All

# Term Papers

A paper will be due on November 30. You may choose any of the main topics in the syllabus (i.e. sections in the text or from class notes) and prepare a paper covering the topic in more depth, or presenting extensions of the material in the text or class notes, after consulting outside references.  Alternatively, you may choose a topic from sections of the text not covered in the syllabus and explain how it works, including its connections with the material covered in the syllabus.

Assignments

Significant business cases or sets of text exercises will be assigned for collection and grading occasionally during the semester.  In addition, every week text exercises will be assigned not for collection and grading but to aid with your mastery of the material.  Completion of this work will be assumed on both the mid-term and the final exams.  Finally, background readings may be assigned in text sections not referenced in the syllabus.  These will not be covered in exams, but should be read to enhance your understanding of the material.

Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.