Supply Chain Management (SCM) concentration



The Department of Mathematics and Computer Science Approved this program unanimously by a 12-0-3 vote, 9/1/12

Background: The Stillman School of Business requires a single mathematics course, MATH 1205, a finite math course with some Calculus content, for all its majors. However, it is increasingly apparent that this “one-size –fits-all” approach does not serve all of its majors. For example, students majoring in Finance who wish to pursue graduate studies in the area would need significantly more mathematics in their background. Unfortunately, most do not arrive at this realization until their junior year. Thus, the addition of (at least) four mathematics courses (Calculus 1-3, plus Linear Algebra) to a curriculum including significant finance content would position these students much better for graduate study.

In addition, this program, while affecting not a single student in Arts and Sciences, will not impinge significantly on department resources. It also opens the door for a future collaboration in “Financial Mathematics” as an option for mathematics majors.

The course descriptions for the four courses that are to be a part of the program are at the end of the document.

In conclusion, this program has been vetted and approved by the School of Business’ EPC.

Proposal to Create an

Undergraduate Concentration Mathematical Finance

Prepared by Tony Loviscek, Chair

Department of Finance

May 1, 2012

I. Program overview, rationale, and expectations

Finance is a sub-discipline of economics, focusing on the measurement of time and risk in the management of financial resources. At its very core, it has a strong grounding in mathematics, as seen, for example, in models of asset pricing (which rely on linear and non-linear relationships between expected returns and micro- and macroeconomic variables), risk (which involve stochastic measures of volatility), options pricing (which applies advanced calculus), and portfolio analysis (which focuses on optimization algorithms).

Currently, Seton Hall does not offer students a program that formally broadens and blends the educational experience across these two complementary disciplines. This observation is not new; both the Department of Mathematics and Computer Science and the Department of Finance have long discussed the possibility of offering such a program. The challenge has not been with the desire but with the ability. Succinctly, while the Department of Mathematics and Computer Science has long had a dedicated and capable faculty to deliver the program, the same could not be said of the Department of Finance (which successfully recruited a number of excellent faculty members, but was unable to retain them for a significant stay in what was a “hot” market for holders of Ph.D.’s in finance) until 2008. Since then, the department has been able to attract and retain five faculty members with strong quantitative backgrounds. For example, the faculty has degrees in mathematics, statistics, and chemistry – the strongest quantitative experience in the history of the department – and with strongly supportive teaching and research credentials (including publications in nationally-recognized “A”-level journals).

The concentration in Mathematical Finance seeks to broaden and deepen the educational experience of students by offering them the opportunity to be active participants – effective problem solvers – in what is becoming a structural shift in thinking since the global financial crisis of 2007-2009. This shift is occurring in both the academic and corporate communities. Current research in the academic community, for example, reveals strong evidence of perverse and complex executive compensation incentives grounded in the advanced mathematics of derivatives products, incentives that have led to excessive risk-taking and a bias toward short-term performance. An understanding of the impact of these perverse incentives is possible only with advanced training in both finance and mathematics. In addition, the corporate community and regulatory agencies have increasingly turned to researchers in the academic community for insights and analysis on new financial models of risk management and securities trading now being implemented for stress testing and metric transparency. Without them, the likelihood of another financial crisis of the kind recently experienced is not insignificant. Thus, the demand is not only for new thinking but new talent in both communities. As a response, the concentration in mathematical finance seeks not only to prepare students for careers in the corporate sector but also to groom them for graduate degrees that would further advance their knowledge of finance and mathematics.

II. Internal and External Assessment

By all accounts in both the public and private sectors, the demand for individuals who have a strong background in mathematics and finance is rising, and will continue to rise throughout the decade. For example, an understanding of the causes and consequences of the global financial crisis of 2007-2009 is almost impossible without an understanding of the underlying mathematics of the models used by corporations worldwide. As mentioned, these models failed financial institutions during the crisis. As a result, new ideas on risk management, financial modeling, financial engineering, currency hedging, and actuarial sciences, for example, are sorely needed.

The Department of Finance currently houses approximately 170 students. The goal is to have at least 25 students enrolled in the program within two years. The aim is to draw from both current and future students. In particular, the pool of future students could be larger than expected. This is because the proposed program is one of the few undergraduate mathematical finance programs among Seton Hall’s aspirant schools, such as Boston College and Villanova.

As preliminary evidence of the program’s potential draw, a departmental survey reveals 16 current students expressing strong interest in the program. Students majoring in mathematics and applied mathematical sciences at Seton Hall as well as other area schools who are drawn to the discipline’s application to finance constitute another candidate pool. In addition, the concentration has drawn significant interest from high-scoring SAT prospective students, as seen in university open house events. Moreover, the program will complement an existing multi-year incremental effort to raise the mathematical competency of all finance students.

III. Internal Impact

The program is effectively a joint one between the Department of Mathematics and Computer Science and the Department of Finance. There will not be a duplication of courses, a duplication of concentrations, or cross-listings of courses at this time. The proposed courses in both departments are well established with full-time faculty actively engaged in their delivery. Each is offered at least once per year, with several offered twice per year. The proposed concentration is as follows:

Concentration Requirements (with course descriptions given below):

Calculus I (MATH 1501) (4 credits)

Honors Calculus II (MATH 1511) (4 credits)

Honors Calculus III (MATH 2511) (4 credits)

Linear Algebra (MATH 2813) (4 credits)

Financial Strategy (BFIN 3211) (3 credits)

Investment Analysis (BFIN 4227) (3 credits)

Select two of the following:

Futures, Options, and Other Derivatives (BFIN 4234) (3 credits)

Fixed Income Analysis (BFIN 4250) (3 credits)

Financial Modeling (BFIN 4255) (3 credits)

Total Credits: 28

As a guide to the structure of the concentration, Babson College currently offers an undergraduate program similar in spirit to the proposed concentration, although requiring only 12 credit hours and with far fewer mathematics and finance courses:

Required Courses:

QTM 3625 Financial Modeling with Simulation

Select two of the following:

FIN 3520 Security Valuation

FIN 4510 Corporate Financial Policy

FIN 4530 Investments

FIN 4560 Options and Futures

Select one of the following:

QTM 3610 Applied Multivariate Statistics

QTM 3615 Time Series Analysis and Forecasting

QTM 3675 Probability for Risk Management

QTM 3676 Financial Mathematics

The proposed concentration stands alone; no competition among programs will occur.

IV. Program needs

The concentration will require the same support from the Walsh Library as the finance concentration and the mathematics concentration currently do. No additional services beyond the excellent support already provided will be necessary. In addition, the Department of Finance houses the Center for Securities Trading and Analysis, which has rich data feeds that promote the application of quantitative research that can help drive the enrollment in the program. Students and faculty have the opportunity to work in an environment similar to what is found in chemistry and biology laboratories, in which theory and concept are put to work in realistic settings.

V. Program Evaluation

In addition to the standard academic indicators of success (e.g., scholarships, induction into the Finance Honor Society, etc.), program evaluation in mathematical finance will be at two levels. At one level will be the number of students enrolled. Because high school students with “AP” credits will be targeted, the success of the program will be measured by the number of students with above-average SAT scores in mathematics. At another level will be job placement. The more quickly students are able to acquire internships and secure desired employment, the more aligned the program will be with market demand, which would drive enrollment further.

Course Descriptions

MATH 1501 Honors Calculus I

Real numbers, proof by induction, functions, definition by recursion, limits, continuity, derivatives and applications, definite integral, Fundamental Theorem of Calculus and inverse functions. Applications using computer software packages. Emphasis on theory. Prerequisite: MATH 1015 or appropriate placement. 4 credits

MATH 1511 Honors Calculus II

Applications of integration, polar coordinates, techniques of integration, infinite series, conics, two-dimensional vectors and differential equations. Applications using computer software packages. Emphasis on theory. Prerequisite: MATH 1401 or MATH 1501. 4 credits

MATH 2511 Honors Calculus III

Vectors in space, vector-valued functions, partial differentiation, multiple integrals, vector analysis, and line and surface integrals. Applications using computer software packages. Emphasis on theory. Prerequisite: MATH 1511. 4 credits

MATH 2813 Linear Algebra

Matrix algebra, determinants, solutions of systems of linear equations, Rn, abstract vector spaces, linear transformations, inner product spaces and eigenvectors. 4 credits

BFIN 3211 Financial Strategy

Extension of basic financial principles with emphasis on corporate finance. Advanced topics include capital budgeting, capital structure and cost of capital estimation, and long-term financial policy. Prerequisite: BFIN 2201. Offered: Fall, Spring. 3 credits

BFIN 4227 Investment Analysis

Coverage of the fundamental principles underlying investment decisions, including security market structure, asset pricing, portfolio theory, valuation of stocks and bonds, portfolio performance evaluation and an introduction to derivatives. Prerequisite: BFIN 2201. Offered: Fall, Spring. 3 credits

BFIN 4234 Futures, Options and Other Derivatives

Examination of topics involving options, futures and swaps, including trading strategies, pricing fundamentals and models, risk management and other applications. Prerequisite: BFIN 4227. Offered: Fall, Spring. 3 credits

BFIN 4250 Fixed Income Analysis

Analysis and valuation of fixed-income securities and markets, including pricing, yields, volatility and the impact of interest rate movements. The course covers traditional bonds and term structure concepts as well as fixed-income derivatives and interest rate modeling. Prerequisite: BFIN 4227. Offered: Fall, Spring. 3 credits

BFIN 4255 Financial Modeling

A practical perspective on the major finance models using Microsoft Excel, with a focus on the development and use of spreadsheet-based financial models, implementation of a concise and sound methodology, and utilization of financial theory over a wide range of applications used in the financial industry. Examples of implemented theories include: portfolio selection and risk assessment, DCF valuation, bond pricing and duration, option pricing and applications, portfolio insurance and Value-at-Risk. Prerequisite: BFIN 3211, BFIN 4227. Offered: Fall, Spring. 3 credits

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