Using R for teaching financial mathematics and statistics

We discuss the use of R, a free software environment for statistical computing and graphics, in teaching financial mathematics and statistics. R can be used to demonstrate the ideas behind Brownian motion, geometric Brownian motion and stochastic integration, and to explore the dependence of the price of a financial product called a European option on other quantities such as the interest rate. The option price can also be estimated using a Monte Carlo approach, and we discuss how R can be employed to illustrate features of this Monte Carlo methodology. Throughout we show how R can be used to provide insights into various financial and statistical concepts, introduce a variety of relevant R packages, and provide suggestions for further R related work.