Mathematics and Statistics for Economics and Finance Module: Module 3, Semester 3

(Maths Camp) ECTS: 6

This lecture will include three parts of mathematics: Dynamics method, Static and Dynamic Optimization theory
and application, and Stochastic Calculus.

Total there will be 40hours, including 25-30 hours for the first two parts and 10-15 hours for the last part.
The aim of this course is preparing the master students with more advanced mathematics tools for their future
research in economics and finance.
In Dynamic Method, we will
(1) Review Qualitative behaviour of 2-dimensional
system (eigenvalues, stability, linearization and
periodic solutions);
(2) Introduce Autonomous systems (Lyapunov
stability);
(3) Show discrete time system and bifurcations
(Periodic equilibrium, Saddle point, Hopf
bifurcations ).
Economic model will be presented and applied in the
process and also in the TA's tutor course.
In Optimization,

First review some basic idea of optimization in static

model (first order, second order conditions with and
without constraints, Inequality constraint with Kuhn-
Tucker conditions, concavity, envelope theorem etc.);

Turn to dynamic optimization theory, in which, we will

introduce (I) calculus of variation (which offer general
methods to almost all kinds of integral type optimization
problem); (II) Pontryagin Maximum principle in
continuous and discrete time; (III) Hamilton-Jacob-
Bellman equation and nonlinear programming in
continuous and discrete time.

We shall see the intuition and principle in an intuitive

way, rather than theoretical proof, most of the results
and applications will be shown with economic models.

Stochastic calculus, especially for the students whose

interest is finance.

We start with review of probability theory and introduce

binomial tree model, then introduce some definition of
Martingale and discrete time model followed by
stochastic calculus with Ito's Lemma, stochastic
differential.
Course learning outcomes:
Learning Outcomes
Students completing the course should be able to:
- Understand basic mathematics such as Linear
Algebra, and elements of multivariable calculus
- Understand and apply techniques of convex static
optimization, dynamic-programming techniques in
both discrete and continuous time, and solve
systems of difference and differential equations.

- Understand Brownian-motion analysis, stochastic

difference equations, barriers and smooth pasting
for valuation

- Understand some basics of dynamic games and

basics of projection methods for numerical analysis.

- Understand random variables, properties of

conditional distributions and expectations and how
they can be used in probability calculations,
multivariate Gaussian random vectors and their
properties, basic asymptotic theory including the law
of large numbers and the central limit theorem,
maximum likelihood estimators and their behavior in
large samples, and the methods of statistical
inference, i.e., hypothesis testing and confidence
intervals, based on large sample approximations.

Description:

Course Motivation and Description

Mathematical and statistical methods are central to

economics. Economic analysis relies on modelling, which
builds upon optimization theory.

A thorough analysis of convex optimization in both static

and dynamic models is a prerequisite for building and
understanding economic models.

Most important is optimization under uncertainty, which

studies how individuals or firms make decisions in
environments with random outcomes and how they cope
with uncertainty.

Econometric methods are needed to quantify the insights

gained from economic analysis so that they can help in
the formulation of economic policy.

The objective of this course, intended for research track

masters students, is to teach students the essential
mathematics and statistics that is necessary for them to
take higher level courses in economics and pursue their
research.