Mathematics of Finance
Contents
Students will learn about and apply the fundamental methods of the mathematics of finance, as well as its application in business administration. The lecture covers two basic problems. First, we will value a payment flow (interests, dividends, bond investment). For that, specific interest models will be introduced. Second, the interest yield of different investments will be defined. In addition, the mathematics of bonds and annuities will be thoroughly analyzed.
- Presentation of different interest models
- Valuation of payments
- Mathematics of annuities
- Valuation of assets and rate of returns
Learning outcomes
Students learn about the time value of money. After learning basic concepts of financial mathematics, the main goal of this course is to apply concepts in daily decision making. For how long can I pay myself a yearly annuity? How to finance real estate? Is a given investment profitable?
Necessary prerequisites
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Recommended prerequisites
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| Forms of teaching and learning | Contact hours | Independent study time |
|---|---|---|
| Lecture | 2 SWS | 1 SWS |
| Exercise class | 2 SWS | 1 SWS |
| Tutorial | 2 SWS | 1 SWS |
| ECTS credits | 3 |
| Graded | yes |
| Workload | 90h |
| Language | German |
| Form of assessment | Written exam (45 min) |
| Restricted admission | no |
| Further information | – |
Examiner Performing lecturer |  | Prof. Dr. Simon Rother Prof. Dr. Simon Rother |
| Frequency of offering | Fall semester |
| Duration of module | 0.5 semesters |
| Preliminary course work | Passing of at least 3 of 5 exercise sheets |
| Course outline | 1. Basics 1.1 Introduction 1.1.1 Mathematics of finance: asset classes 1.1.2 Payment flows 1.1.3 Central assumption: certain payments 1.2 Interest rates 1.2.1 Introduction 1.2.2 Compound interest (geometric interest) 1.2.4 Interest computation 1.2.5 Higher frequency and continuous compounding 1.2.6 Mixed compounding 1.3 Valuing payment flows: present value 1.4 Net present value 2. Annuities 2.1 Annuities and pensions 2.2 Annuity repayment 3. Asset pricing and rate of return 3.1 Asset pricing 3.2 Rate of return 3.2.1 Comments 3.2.2 One period investment 3.2.3 Final maturity investment 3.2.4 Many period investment |