Secrets of Financial Wizardry Revealed!

By Joe Pickett, OCW Publication Director

Flow chart of a pricing model.

Dr. Ivan Masyukov, an Executive Director at Morgan Stanley with an academic background in applied physics and mathematics, lectures on Regularized Pricing and Risk Models. (Image courtesy of Ivan Masyukov.)

All those theorems, equations, models, and matrixes that make math so abstract and ethereal—what can they do for your pocketbook?

Quite a lot, actually, if you apply them to the world of finance.

You can see for yourself by exploring 18.S096 Topics in Mathematics with Applications in Finance, an innovative new course just published on OCW.

The course has four instructors—two from the MIT Mathematics Department (Peter Kempthorne and Choongbum Lee) and two from the financial firm Morgan Stanley (Vasily Strela and Jake Xia). Both Strela and Xia are MIT grads who “were interested in creating a meaningful collaboration with MIT as a way to give back to the institution,” as they say on their This Course at MIT page. So they proposed the idea of this hybrid course to their former department, where it seemed like a winner.

Just so you get the idea: The first four of the 10 course goals would have students

  1. Be able to derive price-yield relationship and understand convexity.
  2. Bootstrap a yield curve.
  3. Compute standard Value At Risk and understand assumptions behind it.
  4. Estimate volatility of an option.

The OCW course site has a superabundance of content: full video lectures, lecture notes and slides, case studies, assignments, and project descriptions, plus a handy glossary of financial terms and a list of useful readings. The lectures alternate between mathematical topics and their applications in finance, so students get the best of both theory and practice.

In the Instructor Insights section of their This Course at MIT page, the instructors reflect on their experience teaching the course and discuss how the course has developed and changed since they first envisioned it. They emphasize the hands-on nature of the course, encapsulated in the case studies, and the challenge of teaching a class with students of decidedly mixed mathematical backgrounds.  They also note how being videotaped has given them a new perspective on their teaching: “We’ve learned so much about how to improve our own teaching by watching ourselves on the videos captured for MIT’s OpenCourseWare. It allows us to see ourselves as the students see us and to make changes in response to this unique perspective.”

And it provides students with the keys to pursuing a career in the real world, where money often seems like so many numbers.

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