Can I Take Probability and Mathematical Intro to Options Concurrently?

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Discussion Overview

The discussion revolves around the feasibility of taking a Probability course concurrently with an Introduction to Options class in mathematical finance. Participants explore the prerequisites, content, and potential challenges of the courses, particularly focusing on the mathematical concepts involved.

Discussion Character

  • Exploratory
  • Technical explanation
  • Debate/contested
  • Homework-related

Main Points Raised

  • One participant inquires about the difficulty of the Introduction to Options class and expresses concern about taking it alongside Probability.
  • Another participant suggests that knowledge of economics is not necessary for studying mathematical finance, emphasizing that concepts like arbitrage pricing and the Black-Scholes formula can be understood without it.
  • It is noted that the Black-Scholes formula relies on assumptions of asset price fluctuations and involves advanced topics such as Brownian motion and Ito's lemma, which are part of stochastic calculus.
  • Concerns are raised about the potential confusion for students lacking exposure to stochastic calculus, as a basic Probability course may not cover stochastic processes.
  • A participant mentions that the professor advised against taking the two courses concurrently, indicating a potential conflict in the required knowledge base.
  • Another participant argues that it may be possible to use the Black-Scholes formula without fully understanding the underlying mathematics, suggesting that not all advanced mathematical concepts will be necessary for the course.
  • There is a mention that intermediate macroeconomic theory may not relate closely to the content of the Introduction to Options class.

Areas of Agreement / Disagreement

Participants express differing views on the necessity of advanced mathematical knowledge for the Introduction to Options class. While some believe a solid understanding of stochastic calculus is essential, others argue that it is possible to engage with the material without it. The discussion remains unresolved regarding the appropriateness of taking the courses concurrently.

Contextual Notes

Participants highlight the potential limitations of the Probability course in covering necessary background for stochastic calculus, which may impact the understanding of the Introduction to Options class. There is also uncertainty regarding the level of mathematical knowledge assumed by the instructor.

Shackleford
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What is this class like? Is it very hard? I took an intermediate macroeconomic theory course a couple of semesters ago. One of the prerequisites for this class is Probability. I will be taking that next semester. I wonder if I could take these two classes concurrently.

Cr. 3. (3-0). Prerequisites: MATH 2433 and MATH 3338. Arbitrage-free pricing, stock price dynamics, call-put parity, Black-Scholes formula, hedging, pricing of European and American options.
 
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You can study mathematical finance without knowing any economics. Arbitrage pricing is easy conceptually, Black-Scholes is built on arbitrage free and assumptions of asset price fluctuation statistic. You would see Brownian motion and Ito's lemma which is part of stochastic calculus (hence the prerequisites for probability). You are also likely to encounter things like Martingale, sigma algebra, etc., it would be very confusing if you don't have any exposure to concepts in stochastic calculus. Note that even a first course in probability would likely not cover stochastic processes, so I am not sure how the teacher is going to teach this class with just assuming basic knowledge of probability, maybe he/she will cover the needed background in stochastic calculus when it comes up. The best way of course is to ask your teacher what level of knowledge in probability is assumed.
 
chingkui said:
You can study mathematical finance without knowing any economics. Arbitrage pricing is easy conceptually, Black-Scholes is built on arbitrage free and assumptions of asset price fluctuation statistic. You would see Brownian motion and Ito's lemma which is part of stochastic calculus (hence the prerequisites for probability). You are also likely to encounter things like Martingale, sigma algebra, etc., it would be very confusing if you don't have any exposure to concepts in stochastic calculus. Note that even a first course in probability would likely not cover stochastic processes, so I am not sure how the teacher is going to teach this class with just assuming basic knowledge of probability, maybe he/she will cover the needed background in stochastic calculus when it comes up. The best way of course is to ask your teacher what level of knowledge in probability is assumed.

I emailed the professor and asked if it is possible to take this class and Probability concurrently. He said, "I'd advise against it."
 
Most likely it won't require most of the math chingkui mentioned. For instance, you can use the Black Scholes formula to price options without understanding the all the mathematical machinery underneath it, which as chingkui hinted at, would probably require a course in stochastic calculus, as well as analysis at the upper undergraduate or graduate level.

And yeah intermediate macro will likely have absolutely no similarities to intro to options (ignoring basic stuff like working with interest).
 

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