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
8604868382
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
Introduction to the Applied Mathematics of Corporate Finance and Introduction to Derivatives and Option Pricing Models
Copeland et al, Financial Theory and Corportate Policy (4^{th}
ed.)
Responsible for substantial additional nontext material presented in class
Various resources as referenced in the text
Ho & Lee, The
Chew, The New Corporate
Finance/where theory meets practice (3^{rd} ed.)
McDonald, Derivative Markets (2^{nd} ed.)
Megginson, Corporate
Finance Theory
Shreve, Stochastic Calculus for Finance I: Binomial Asset Pricing Model
Brealey Myers Allen, Principles of Corporate Finance (8^{th} ed.)
Panjer (ed.), Financial Economics
Gollier, The Economics of Risk and Time
Term Paper 35%
Cases & Assignments 15%
Midterm Exam 20%
Final Exam 30%
Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.
Outline & Intended Pace



Week of 
Topic(s) 
Material 

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


827 
introduction 


93 
decisions about value; expected cash flow; DCF valuation 
handout Ch. 2AH 

910 
financial statement analysis – where and when is the cash? 


917 
risk; variance of cash flow 
Ch. 5AD 

924 
capital asset pricing model (CAPM) 
Ch. 5EF, 6AH 

101 
market risk premium; arbitrage pricing theory (APT); market efficiency 
Ch. 6IM, 10AD 

108 
market efficiency: cost of information, evidence 
Ch. 10EG, 11AF 

1015 
market efficiency: evidence; corporate tax effect on value 
Ch.11GH,14C 

1022 
financing decisions: capital structure, MM theory 
Ch. 15AE 

1029 
financing decisions: capital structure, practical considerations 


115 
financing decisions: dividend policy: cash plus information 
Ch. 16AF 

1112 
dividend policy: effect on value; real options – a new approach to value 


1126 
real options  where does value come from? 


123 
review and/or extra topics 
TBD 


Final Exam TBD week of 1210 to 1215 
All 

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 midterm 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.