Financial Mathematics II – Applied Mathematics of Corporate Finance
Math 369
Spring 2007
For an introduction to derivative securities enrollees in
this course must also enroll in Math 401, sec. 02 (1 credit) meeting W
4:255:15
Classes: M: 3:00 – 4:15 Instructor: James G. Bridgeman, FSA
W: 3:00 – 4:14,
4:255:15 MSB408
MSB215 8604868382 bridgeman@math.uconn.edu
Office Hours: M 10:00 – 11:00,1:00 – 2:00 websites:
Th 10:00 –12:00,2:00 – 3:00 instructor’s math.uconn.edu/~bridgeman
F: 10:00 – 11:00
course: math.uconn.edu/~bridgeman/math369f06/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
Copeland et al, Financial Theory and Corportate
Policy (4^{th} ed.)
Various resources as referenced in the text
Ho & Lee, The
Chew, The
New Corporate Finance/where theory meets practice (3^{rd} ed.)
Megginson, Corporate
Finance Theory
Brealey Myers Allen, Principles of Corporate Finance (8^{th} ed.)
Panjer (ed.), Financial Economics
Gollier, The Economics of Risk and
Time
Term Paper 25%
Cases & Assignments 25%
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 


the Wed. seminar on derivative securities will proceed at a separate pace 


Jan. 15 
introduction 


Jan. 22 
decisions about value; expected cash flow; DCF valuation 
handout Ch. 2AH 

Jan. 29 
financial statement analysis – where and when is the cash? 


Feb. 5 
risk; variance of cash flow 
Ch. 5AD 

Feb. 12 
capital asset pricing model (CAPM) 
Ch. 5EF, 6AH 

Feb. 19 
market risk premium; arbitrage pricing theory (APT); market efficiency 
Ch. 6IM, 10AD 

Feb. 26 
market efficiency: cost of information, evidence 
Ch. 10EG, 11AF 

March 12 
market efficiency: evidence; corporate tax effect on value 
Ch.11GH,14C 

March 19 
financing decisions: capital structure, MM theory 
Ch. 15AE 

March 26 
financing decisions: capital structure, practical considerations 


April 2 
financing decisions: dividend policy: cash plus information 
Ch. 16AF 

April 9 
dividend policy: effect on value; real options – a new approach to value 


April 16 
real options  where does value come from? 


April 23 
review and/or extra topics 
TBD 


Final Exam TBD week of April 30 – May 5 
All 

A paper will be due on April 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.