640:495 RESOURCES

I. Textbooks

(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 bible. 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

D. Luenberger, Investment Science, Oxford, 1997.
M. Capinski and T. Zastawniak, Mathematics for Finance; An Introduction to Financial Engineering, Springer Undergraduate Mathematics Series, 2004.

Luenberger's book is a broad introductory survey of financial mathematics covering more than options pricing. It is at about the level of sophistication 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 you wish.

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 Finance, published by Springer-Verlag in their Mathematics for Finance series.

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 assignments.

http://www.amex.com 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.
http://www.riskglossary.com 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.
http://www.888options.com 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 Options Basics.

You may also wish to check out the Chicago Board Options Exchange, http://www.cboe.com. And you can probably find other good sites with information about financial derivatives.