Teaching Forward and Options Pricing with Minimal Mathematics

# Is it possible to understand financial theory without mathematics?


# Is it possible to understand financial theory without mathematics?












I am trying to develop a short course on financial theory, covering the fundamentals of forward and options pricing, and 'efficient market' theory. I want to reduce the amount of mathematics to a minimum. This is not because the audience does not include mathematicians (it does) but rather because in my view mathematics generally detracts from the simplicity and beauty of a subject. Mathematics also focuses on the process of derivation from assumptions, rather than the assumptions themselves.

My question is whether this would be possible for financial theory. In particular (a) are there any basic principles of financial theory that cannot be grasped without complex mathematics and (2) are there any important results (i.e. derived results) which cannot be explained except by complex mathematics?

For a sense of where I am coming from, this page http://mathworld.wolfram.com/PythagoreanTheorem.html on beautiful versus complicated proofs of Pythagoras.

## Answer by user1157 (score 4)

https://quant.stackexchange.com/a/10215

For the binary tree model the full replication property of all possible options can be shown using basic algebra and the no-arbitrage argument. It's beautiful how simple it is actually.

You can find the complete derivation in Shreve's Stochastic Calculus for Finance I: The Binomial Asset Pricing Model.

## Answer by vonjd (score 3)

https://quant.stackexchange.com/a/10218

A very good book covering such fundamentals with no or only a minimal amount of maths — highly recommended!



The topics that are covered here are:

- Siegel's Paradox

- Likelihood of Loss

- Time Diversification

- Why the Expected Return Is Not To Be Expected

- Half Stocks All the Time or All Stocks Half the Time?

- The Irrelevance of Expected Return on Option Valuation

Another well received title, perhaps even more fitting here, is the following:

- Essays in Derivatives by Don Chance

From the preface:

> My primary objective in a book like this is to create something about derivatives that is easy to read. Derivatives can be a painful subject to learn, and many legal pads are used up, sometimes frustratingly, in working through some of the principles covered in technical derivatives books. This book is different. While I do not advise that you curl up with it by a warm fire, a loyal dog, and a loved one, I do think you can relax in an easy chair and read it without pen and paper at your side. To that extent, this book is unique. Rarely will you find a derivatives book without equations.