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 FINANCIAL ENGINEERING
ADVANCED BACKGROUND SERIES

FE PRESS
New York
Financial Engineering Advanced Background Series
Published or forthcoming
1. A Primer for the Mathematics of Financial Engineering, by Dan Stefanica
2. Numerical Linear Algebra Methods for Financial Engineering Applica-
tions, by Dan Stefanica
3. A Probability Primer for Mathematical Finance, by. Elena Kosygina
4. Differential Equations with Numerical Methods for Financial Engineering,
by Dan Stefanica
 A PRIMER
for the
MATHEMATICS
of
FINANCIAL ENGINEERING

DAN STEFANICA
Baruch College
City University of New York

FE PRESS
New York
 FE PRESS
New York

www.fepress.org
Information on this title: www.fepress.org/mathematical_primer

©Dan Stefanica 2008

All rights reserved. No part of this publication may be

reproduced, stored in a retrieval system, or transmitted,
in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher.

First published 2008

Printed in the United States of America

ISBN-13 978-0-9797576-0-0
ISBN-10 0-9797576-0-6
To Miriam
and
to Rianna
Contents

List of Tables xi

Preface xiii

Acknowledgments xv

How to Use This Book xvii

0. Mathematical preliminaries 1
0.1 Even and odd functions 1
0.2 Useful sums with interesting proofs 4
0.3 Sequences satisfying linear recursions 8
0.4 The "Big 0" and "little o" notations 12
0.5 Exercises 15

1 Calculus review. Options. 19

1.1 Brief review of differentiation 19
1.2 Brief review of integration 21
1.3 Differentiating definite integrals 24
1.4 Limits 26
1.5 L'Hopit al's rule 28
1.6 Multivariable functions 29
1.6.1 Functions of two variables 32
1.7 Plain vanilla European Call and Put options 34
1.8 Arbitrage-free pricing 35
1.9 The Put-Call parity for European options 37
1.10 Forward and Futures contracts 38
1.11 References 40
1.12 Exercises 41

vii
viii CONTENTS

2 Numerical integration. Interest Rates. Bonds. 45

2.1 Double integrals 45
2.2 Improper integrals 48
2.3 Differentiating improper integrals 51
2.4 Midpoint, Trapezoidal, and Simpson's rules 52
2.5 Convergence of Numerical Integration Methods 56
2.5.1 Implementation of numerical integration methods 58
2.5.2 A concrete example 62
2.6 Interest Rate Curves 64
2.6.1 Constant interest rates 66
2.6.2 Forward Rates 66
2.6.3 Discretely compounded interest 67
2.7 Bonds. Yield, Duration, Convexity 69
2.7.1 Zero Coupon Bonds 72
2.8 Numerical implementation of bond mathematics 73
2.9 References 77
2.10 Exercises 78

3 Probability concepts. Black—Scholes formula. Greeks and

Hedging. 81
3.1 Discrete probability concepts 81
3.2 Continuous probability concepts 83
3.2.1 Variance, covariance, and correlation 85
3.3 The standard normal variable 89
3.4 Normal random variables 91
3.5 The Black-Scholes formula 94
3.6 The Greeks of European options 97
3.6.1 Explaining the magic of Greeks computations 99
3.6.2 Implied volatility 103
3.7 The concept of hedging. A- and F-hedging 105
3.8 Implementation of the Black-Scholes formula 108
3.9 References 110
3.10 Exercises 111

4 Lognormal variables. Risk—neutral pricing. 117

4.1 Change of probability density for functions of random variables 117
4.2 Lognormal random variables 119
4.3 Independent random variables 121
 4.4 Approximating sums of lognormal variables 126
4.5 Power series 128
4.5.1 Stirling's formula 131
4.6 A lognormal model for asset prices 132
4.7 Risk-neutral derivation of Black-Scholes 133
4.8 Probability that options expire in-the-money 135
4.9 Financial Interpretation of N(di) and N(d2) 137
4.10 References 138
4.11 Exercises 139

5 Taylor's formula. Taylor series. 143

5.1 Taylor's Formula for functions of one variable 143
5.2 Taylor's formula for multivariable functions 147
5.2.1 Taylor's formula for functions of two variables 150
5.3 Taylor series expansions 152
5.3.1 Examples of Taylor series expansions 155
5.4 Greeks and Taylor's formula 158
5.5 Black-Scholes formula: ATM approximations 160
5.5.1 Several ATM approximations formulas 160
5.5.2 Deriving the ATM approximations formulas 161
5.5.3 The precision of the ATM approximation of the Black-
Scholes formula 165
5.6 Connections between duration and convexity 170
5.7 References 172
5.8 Exercises 173

6 Finite Differences. Black-Scholes PDE. 177

6.1 Forward, backward, central finite differences 177
6.2 Finite difference solutions of ODEs 180
6.3 Finite difference approximations for Greeks 190
6.4 The Black-Scholes PDE 191
6.4.1 Financial interpretation of the Black-Scholes PDE . . 193
6.4.2 The Black-Scholes PDE and the Greeks 194
6.5 References 195
6.6 Exercises 196

7 Multivariable calculus: chain rule, integration by substitu-

tion, and extrema. 203
7.1 Chain rule for functions of several variables 203
x CONTENTS

7.2 Change of variables for double integrals 205

7.2.1 Change of Variables to Polar Coordinates 207
7.3 Relative extrema of multivariable functions 208
7.4 The Theta of a derivative security 216
7.5 Integrating the density function of Z 218
7.6 The Box—Muller method 220
7.7 The Black—Scholes PDE and the heat equation 221
7.8 Barrier options 225
7.9 Optimality of early exercise 228
7.10 References 230
7.11 Exercises 231

8 Lagrange multipliers. Newton's method. Implied volatil-

ity. Bootstrapping. 235
8.1 Lagrange multipliers 235
8.2 Numerical methods for 1-D nonlinear problems 246
8.2.1 Bisection Method 246
8.2.2 Newton's Method 248
8.2.3 Secant Method 253
8.3 Numerical methods for N—dimensional problems 255
8.3.1 The N—dimensional Newton's Method 255
8.3.2 The Approximate Newton's Method 258
8.4 Optimal investment portfolios 260
8.5 Computing bond yields 265
8.6 Implied volatility 267
8.7 Bootstrapping for finding zero rate curves 270
8.8 References 272
8.9 Exercises 274

Bibliography 279

Index 282
List of Tables

2.1 Pseudocode for Midpoint Rule 59

2.2 Pseudocode for Trapezoidal Rule 59
2.3 Pseudocode for Simpson's Rule 60
2.4 Pseudocode for computing an approximate value of an integral
with given tolerance 61
2.5 Pseudocode for computing the bond price given the zero rate curve 74
2.6 Pseudocode for computing the bond price given the instantaneous
interest rate curve 75
2.7 Pseudocode for computing the price, duration and convexity of a
bond given the yield of the bond 77

3.1 Pseudocode for computing the cumulative distribution of Z . . . 109

3.2 Pseudocode for Black—Scholes formula 109

8.1 Pseudocode for the Bisection Method 247

8.2 Pseudocode for Newton's Method 250
8.3 Pseudocode for the Secant Method 254
8.4 Pseudocode for the N-dimensional Newton's Method 257
8.5 Pseudocode for the N-dimensional Approximate Newton's Method 259
8.6 Pseudocode for computing a bond yield 266
8.7 Pseudocode for computing implied volatility 269

xi
Preface
The use of quantitative models in trading has grown tremendously in recent
years, and seems likely to grow at similar speeds in the future, due to the
availability of ever faster and cheaper computing power. Although many
books are available for anyone interested in learning about the mathematical
models used in the financial industry, most of these books target either the
finance practitioner, and are lighter on rigorous mathematical fundamentals,
or the academic scientist, and use high-level mathematics without a clear
presentation of its direct financial applications.
This book is meant to build the solid mathematical foundation required
to understand these quantitative models, while presenting a large number of
financial applications. Examples range from Put-Call parity, bond duration
and convexity, and the Black—Scholes model, to more advanced topics, such as
the numerical estimation of the Greeks, implied volatility, and bootstrapping
for finding interest rate curves. On the mathematical side, useful but some-
times overlooked topics are presented in detail: differentiating integrals with
respect to nonconstant integral limits, numerical approximation of definite
integrals, convergence of Taylor series, finite difference approximations, Stir-
ling's formula, Lagrange multipliers, polar coordinates, and Newton's method
for multidimensional problems. The book was designed so that someone with
a solid knowledge of Calculus should be able to understand all the topics pre-
sented.
Every chapter concludes with exercises that are a mix of mathematical
and financial questions, with comments regarding their relevance to practice
and to more advanced topics. Many of these exercises are, in fact, questions
that are frequently asked in interviews for quantitative jobs in financial in-
stitutions, and some are constructed in a sequential fashion, building upon
each other, as is often the case at interviews. Complete solutions to most of
the exercises can be found at http://www.fepress.org/
This book can be used as a companion to any more advanced quantitative
finance book. It also makes a good reference book for mathematical topics
that are frequently assumed to be known in other texts, such as Taylor expan-
sions, Lagrange multipliers, finite difference approximations, and numerical
methods for solving nonlinear equations.
This book should be useful to a large audience:
• Prospective students for financial engineering (or mathematical finance)
Exploring the Variety of Random
Documents with Different Content
 The non-commissioned officer receives his orders from his battery
commander and battery officer of the day, and when relieved will
turn over all his orders to his successor.
He instructs his sentinels in their general and special duties;
exercises general supervision over his entire guard; exacts order and
cleanliness about the guard-room; prevents the introduction of
intoxicants into the guard-house or stables; receives by count, from
his predecessor, the animals, horse equipments, and all property
(both private and public) pertaining thereto; examines, before
relieving his predecessor, all locks, windows, and doors, and should
any be found insecure he will report the fact to the battery officer of
the day. He, or the junior non-commissioned officer of the guard,
will personally post and relieve each sentinel, taking care to verify
the property responsibility of the sentinel who comes off post, and
see that the sentinel who goes on post is aware of the property
responsibility he assumes. During the day and night the non-
commissioned officers will alternate in tours, one of them remaining
constantly on the alert.
That the non-commissioned officer may be more thoroughly
informed of his responsibility, all horses returning, except those from
a regular formation, will be reported to and inspected by him. He will
then notify the sentinel on post, and see that the horses are
promptly cared for. In case of abuse he will promptly report to the
battery officer of the day. Should the horse be the private property
of an officer, he will report such abuse to the owner.
The non-commissioned officer will report any unusual occurrence
during his tour to the battery officer of the day.
Horses and other property for which the non-commissioned officer
is responsible will not be taken from the stables without the order of
the battery commander, with the following exceptions:
a. Officers' horses and private property are subject to their own
written order.
 b. Horses authorized for mounted duty or pass may be taken out
on a written order of the battery commander.
c. No formal order will be required for horses and equipments to
leave the stable at established hours for ceremonies, mounted drill,
herding and watering horses. The commander of the guard must be
present and satisfy himself that they are being taken out solely for
these purposes.
d. The horses and equipments of the first sergeant and stable
sergeant (unless otherwise ordered by the battery commander) may
be taken out by themselves, or on their written order, between
reveille and retreat. This privilege may be extended to the other
sergeants.
e. The battery team will be allowed to leave the stables in the
daytime (between reveille and retreat) when the wagoner reports it
to be necessary.
In case of fire at the stable the commander of the guard will take
the necessary precautions in opening or closing the doors, so as to
prevent as far as possible the spreading of the fire and make it
possible to remove the horses. He will then, assisted by all the
available men, commence to lead out the horses, and, if practicable,
secure them at the picket-line or other designated place.
The non-commissioned officer will have exclusive control of the
lanterns, and will see that they are prepared during the day for
lighting at night.
The lanterns will not be lighted, filled, or trimmed in the stables,
but must be taken to the guard-room, or to such other place as may
be designated by the battery commander for the purpose.
The non-commissioned officer must answer the sentinels' calls
promptly.
Sentinel of Stable-guard.—The sentinel in the discharge of his
duties will be governed by the regulations for sentinels of other
guards whenever they are applicable, such as courtesies to officers,
walking post in a soldierly manner, challenging, etc.; he will not turn
out the guard except when ordered by the proper authority.
The sentinel will receive orders from the battery commander, the
battery officer of the day, and the non-commissioned officers of the
stable-guard only.
The sentinel will not permit any horse or equipments to be taken
from the stables except in the presence of the non-commissioned
officer.
Should a horse get loose, the sentinel will catch him and tie him
up. If he be unable to catch the horse, the non-commissioned officer
will be at once notified. In case a horse be cast, or in any way
entangled, he will relieve him if possible; if unable to relieve him, he
will call the non-commissioned officer. Sentinels are forbidden to
punish or maltreat a horse.
When a horse is taken sick, the sentinel will notify the non-
commissioned officer, who will in turn call the stable sergeant, and
see that the horse is properly attended to.
In case of fire the sentinel will give the alarm by stepping outside
the stable and firing his pistol (if he be armed) repeatedly, calling
out at the same time, "Fire, stables, battery—!"
As soon as the guard is alarmed he will take the necessary
precautions in opening or closing the doors, so as to prevent the
spreading of the fire and make it possible to remove the horses; he
will drop the chains and bars, and, with the other members of the
guard, proceed to lead out the horses, and secure them at the
picket-line or such other place as may have been previously
designated.
 CHAPTER VI.
The Horse. How Obtained. Description of. Inspection of. Power of Teams.
Weight behind Artillery-teams. Gaits of Artillery. Dentition. Plate of
Diseases. Sick Horses. Health and Disease. Veterinary Medicines. Drugs
and Doses, and How to Administer Them. Mashes, Poultices, etc.
Veterinary Notes, with Symptoms and Treatment of Various Diseases.
Stables and Stable Management. Grooming. Feeding and Kinds of Food.
Watering. Training Horses. Rules for Treatment and Care of Horses.
Destruction of Horses.

HORSES.

HOW OBTAINED, DESCRIPTION, ETC.

Horses are obtained from the Quartermaster Department. Submit

requisitions, generally in triplicate, stating the color desired, and
whether the horse is for lead-, swing-, or wheel-team.
The artillery-horse must be sound, free from vicious habits, a
square trotter, well broken to harness, and must conform as nearly
as possible to the following description: A gelding of uniform and
hardy color; in good condition; from fifteen to sixteen hands high;
weight of the lead-horse not less than 1050 pounds, and that of the
wheel-horse not more than 1300 pounds; from four to eight years
old; full-chested; shoulders sufficiently broad to support the collar,
but not too heavy; full-barrelled, with broad, deep loins; short-
coupled, with solid hindquarters; feet sound and in good order.
Long-legged, loose-jointed, long-barrelled, and narrow-chested
horses, as well as those which are restive, vicious, or too free in
harness, are to be rejected.

SELECTING HORSES.
 Care must be taken not only that they possess the form and
qualities necessary for the work they are likely to be employed in,
but also that they are docile and easy-tempered and sound. Form
differs according to breed, and upon it depends the fitness of the
animal for draught or saddle purposes. For either purpose a horse
should walk and trot well. Horses with deeply scarred backs (or, if for
harness, shoulders), or which show signs of having been much cut
with the girth (girth-galled), should not be selected, if avoidable. If
for riding purposes, the withers should be neither too high nor too
low, and the shoulders oblique; forearms long and muscular; chest
moderately wide and deep; ribs well arched behind saddle and
continued close to haunch; loins broad; hindquarters long, wide, and
muscular; tail set on as near the level of the croup as possible; limbs
from knees and hocks downwards short, wide laterally, with the
tendons and ligaments standing well apart from the bone, and
distinctly defined. Neither beneath knee nor hock should they be
narrow or abruptly tied in; knees wide in front, hocks sideways.
Pasterns not too long or oblique, inclined out or in, nor yet too
upright; hoofs black, if possible, and circular in shape; wall smooth
and even from coronet to ground, and not marked by horizontal
rings; heels well spread; soles concave and strong; frogs well
developed, sound, and firm. The foot in progression should be
placed evenly on the ground, neither toe nor heel coming too
markedly in contact with it. Coarse-bred horses, with hairy legs and
large, flat feet, should never be chosen. Fore limbs should be
examined for broken knees, splints, sprains of tendons and
ligaments (indicated by thickening, and, if recent, by tenderness on
manipulation), ring-bone (an uneven deposit of bony matter around
the lower end of the pastern), side-bone (ossification of the elastic
cartilages on each side of the foot toward the heels), sand-crack in
hoof (usually in the inside quarter of fore foot), chronic laminitis
(manifested by horse putting heels first to the ground, convex soles,
walls hollow in the middle in front, bulging at toe, and made uneven
by rings on surface), navicular disease (usually shown by contracted
heels, very concave soles, lameness, and digging toes in the ground
during walk or trot, wearing the shoe more at point of toe than
elsewhere, extending limb forward and elevating heels while at rest),
corns (a bruise of sole at the heels, only to be discovered by removal
of shoe and paring sole at this part).
Hind limbs should he examined for spavin in hock (a bony tumor
in front of inside hock, best seen by standing at animal's shoulder
and viewing this part of the joint in profile; compare both hocks in
this way, and if there is any inequality, and the prominence be hard,
it is almost certain to be spavin; lameness or stiffness of the limb is
generally present), sprain of tendon inside hock (marked by a
swelling inside point of hock), curb (a sprain of ligament at back and
below point of hock, seen as a more or less prominent convex
swelling on looking at the hock sideways), sprain of back tendons or
ligaments (as in fore limb), ring-bone (as in fore limb).
The eyes should be healthy; examine them by moving the finger
smartly near the eye, but without touching it, when the animal will
wink if it be not blind; for careful examination, inspect the eye in
sunlight, then cover with hand for a few seconds to ascertain if the
pupil contracts and enlarges; to examine interior of eye, employ a
lighted candle in a darkened stable.
Examine head behind ears, withers, back, and shoulders for
bruises; nostrils for glanders (if there be any discharge); turn round
suddenly and back the horse to discover if there is sprain of back,
and if hindquarters are moved firmly and promptly. Inspect skin for
mange and ringworm, heels for grease and cracks, and coronets for
fistulous wounds.
Have him ridden very rapidly for a couple of hundred yards,
stopped suddenly, and then place ear in rear of left shoulder to listen
if the heart beats properly, and also near the nostril to hear if his
breathing is all right.
If a hollow cough is present, observe motion of abdomen at flank;
should this have a double ascending movement or "lift" in expiration,
the animal is broken-winded. In galloping, or when suddenly
menaced by a blow of a whip, should a grunt or shrill whistling
sound be heard in inspiration, the animal should be rejected. If,
during rapid motion, a wheezing noise be heard in expiration or
inspiration, the horse is unsound.
Before selection is completed the horse should be ridden if for
saddle purposes, or driven in harness if for draught.
Every animal will be branded with the letters "U. S." on the left
fore shoulder on the day he is received. They are also branded on
the left hip with the letter of the battery and the number of the
regiment. A complete descriptive list will be made of each animal at
the time of purchase, which will accompany him wherever he may
be transferred.

Fig. 72.

A. Molar teeth
B H. Canine or tush
C I. Incisors
E. Atlas
G. Orbit
M. Cariniform cartilage
N. Ensiform cartilage
O. Coracoid process of scapula
P. Spine
Q. Cartilage
R. Trochanter major
S. Subtrochanterian crest
T. Trochlea
U. External condyle
V. Patella
W. Hock-joint

1. Cranium
2. Lower jaw
3. Cervical vertebræ
4, 4. Dorsal vertebræ
5, 5. Lumbar vertebræ
6, 6. Sacrum
7, 7. Coccygeal vertebræ
8. Sternum
9, 9. True ribs
10, 10. Cartilages of true ribs
11, 11. False ribs
12, 12. Cartilages of false ribs
13. Scapula
14. Humerus
15. Radius
16. Elbow
17. Os pisiforme
18, 19, 20, 21, 22, 23. Carpal bones
24. Large metacarpal bone
25. Outer small metacarpal bone
26. Inner small metacarpal bone
27, 28. Sesamoid bones
29. Os suffraginis
30. Os coronæ
31. Os pedis
32. Wing of the pedal bone
33, 34, 35, 36. Os innominatum
37. Femur
38. Tibia
39. Os calcis
40. Astragalus
41, 42, 43, 44. Tarsal bones
45. Large metatarsal bone
46. Outer small metatarsal bone
47. Inner small metatarsal bone
 Fig. 73.
Head.

1. Muzzle
2. Nostril
3. Forehead
4. Jaw
5. Poll

Neck.

6, 6. Crest
7. Throttle or windpipe

Forequarter.

8, 8. Shoulder-blade
9. Point of shoulder
10. Bosom or breast
11, 11. True arm
12. Elbow
13. Fore arm (arm)
14. Knee
15. Cannon-bone
16. Back sinew
17. Fetlock or pastern joint
18. Coronet
19. Hoof or foot
20. Heel

Body or Middle Piece.

21. Withers
22. Back
23, 23. Ribs (forming together the barrel or chest)
24, 24. The circumference of the chest at this point, called the
girth
25. The loins
26. The croup
27. The hip
28. The flank
29. The sheath
30. The root of the dock or tail

Hindquarter.

31. The hip-joint, round, or whirlbone

32. The stifle-joint
33, 33. Lower thigh or gaskin
 34. The quarters
35. The hock
36. The point of the hock
37. The curb-place
38. The cannon-bone
39. The back sinew
40. Pastern or fetlock joint
41. Coronet
42. Hoof or foot
43. Heel
44. Spavin-place

POWER OF TEAMS.

If a horse has to work at speed (as in the case of horse-artillery)

he can, as a rule, under service conditions, draw about 600 pounds,
or carry on his back about 260 pounds, although in some services he
is required to do more.
In light field-artillery, where great speed is not expected, this may
he increased to about 700 pounds; for heavy field-artillery a further
increase may be made.
Metcalfe gives: horse-artillery, 650 pounds; light field-artillery, 700
pounds; heavy field-artillery, 850 pounds; and siege-artillery, 1000
pounds; and the English Handbook contains the following table
giving a rough estimate of what teams may be called upon to
transport:

Teams of Teams of Teams of Teams of

4 horses. 6 horses. 8 horses. 12 horses.
Cwt. Cwt. Cwt. Cwt.
Horse-artillery batteries 20 to 24 33 to 36 ........ ........
Field-batteries 26 to 30 39 to 45 48 to 56 ........
Batteries of position ........ ........ 70 5 tons
 Fig. 74.
b, breast-strap; c, collar; d, double-tree; s, single-tree; t, trace.
Owing to their interference with each other's motions, the
maximum load drawn by teams of horses increases less rapidly than
does the number of horses in draught. In horse-artillery teams 6
horses is the greatest number that can be usefully employed; in the
heavier field-batteries 8 horses are sometimes used, but not when it
can be avoided, as it makes a cumbersome team and a large
percentage of the working power of the extra pair is lost.
Bad roads, insufficient food, rapid movement for short times, and
forced marches require that the weights behind horses should be
kept at a minimum consistent with the service required. The average
weights exclusive of cannoneers of all the principal military powers
are: horse-artillery—gun-carriage, 634 lbs.; caisson, 727 lbs.;[7] and
field-artillery—gun-carriage, 718 lbs.; caisson, 796 lbs.

GAITS FOR ARTILLERY.

The Manœuvring Gallop is at the rate of twelve miles an hour

(352 yards in a minute). This gait is used on occasions by horse-
artillery, and in great emergencies for very short distances by field-
artillery.
The Manœuvring Trot or Trot-out is at the rate of eight miles
an hour (235 yards in a minute.)
 The Canter is at the same rate, viz., eight miles an hour.
The Slow Trot is at the rate of from six to six and one half miles
an hour, and should be used by light artillery for distances of several
miles when necessary to move at a faster gait than a walk.
At drills and on road marches it should be considerably employed
so that teams may move easily and with unnecessary fatigue when
called on to cover long distances rapidly.
The Walk is at the rate of four miles an hour (117 yards in a
minute). It is the pace usually employed on the line of march for
field-batteries, although they move, as does horse-artillery, at an
alternate trot and walk, covering about five miles an hour.

DENTITION.

Age of Horse from One to Nine Years, as Indicated by

Teeth (Incisors) in Lower Jaw.—The age of a horse is
determined by:
1. The character of the teeth, i.e., whether they be temporary or
permanent.
2. The period at which they are cut.
3. The condition of the teeth themselves.
Temporary or milk teeth are distinguished from the permanent
teeth by being smaller, whiter, and having more distinct necks. The
fangs are small and have little attachment to the gums. The jaws are
plump, fleshy, and round, and the teeth are arranged in something
like a semicircle. Permanent teeth are larger, broader, wider in the
necks and more discolored than milk-teeth. The plumpness and
circularity of the jaw is less than in the young colt, and gradually
decreases. In old age the teeth are arranged in a nearly straight line.
During the first ten months the six incisors appear. At twelve
months the teeth show little signs of wear, the corner teeth are mere
shells, having no inner walls, and the teeth are close together.
 At two years the corner teeth have grown up to level of others;
the centre teeth are worn. The teeth stand wide apart at necks
because of growth of jaw.
Shortly before three years old the two centre milk-teeth are shed
and replaced by permanent teeth.
Shortly before four years old the next two milk-teeth on either
side are shed, and permanent ones appear.
Shortly before five years old the corner milk-teeth are shed, and
permanent ones appear, but as shells only, having no internal walls.
At about six years old the inner wall of the corner teeth has
grown up level with outer wall.
The tusks appear at about three and one half years, are matured
at six, and then begin to wear away. Usually absent in mares.
Between three and five years the marks or cups in the permanent
teeth are very plain.
At six the marks are well worn in centre teeth.
At seven the marks disappear from centre teeth, are well worn in
the two next, but plain in corner teeth.
At eight the marks have all disappeared, except in corner teeth, in
which they are worn.
At nine the marks are usually gone from all the incisor teeth in
lower jaw.
The temporary incisors in upper jaw fall out usually a little earlier
than those in lower jaw. The permanent incisors in upper jaw are
longer and larger than the lower, and the mark is deeper and
remains longer than in the lower teeth.
Beyond nine years the teeth become angular and foul, the tusks
worn, and the age only to be determined accurately by much
experience and observation.
 Old horses frequently suffer from uneven and sharp-edged
grinders. Their mouths should be occasionally examined, particularly
if the animal be off his feed, and, if necessary, the teeth should be
rasped off.

SICK HORSES.

The horses on sick report are in charge of the stable sergeant,

who reports daily to the captain for instructions as to their
treatment.
In garrison the battery officer of the day inspects the sick horses
daily, and records in his guard-report book the names of the horses
on sick report, and the treatment they receive.
In treating sick horses it is to be observed that very little medicine
is ordinarily required, and that unnecessary doses do a great deal of
harm.
If a horse sustain an injury, neglect his feed, refuse his water, or
give any evidence of sickness, it will be at once reported.
No horse on sick report will be taken from the stable or picket-line
for exercise or work without permission from proper authority.
If there be at any time a suspicious discharge from one or both
nostrils of an animal, it must be immediately reported.
To prevent contagion to man or beast, an animal that shows any
decided symptoms of glanders is to be isolated at once, and
confined or tied up in some locality where no other animal can
approach him.
A glandered horse should be killed as soon as possible. The stall
in which he stood is torn down and all the woodwork burned and the
ironwork disinfected, or otherwise it is closed and must remain
empty until the rack, manger, and every part of the iron and
woodwork, as also the vessels used in watering and feeding, and his
saddle and bit, have been three or four times thoroughly washed
with a 5 per cent solution of carbolic acid or a 1 to 1000 solution of
corrosive sublimate; all parts to which the latter has been applied
should be thoroughly scrubbed with hot water to remove all traces
of the poisonous salt. The application of a lime wash to all the stalls,
after complete disinfection, will be desirable. Small articles, such as
bits, etc., can be disinfected by keeping them immersed for a half-
hour in boiling water. All articles of little value that have been used
with a glandered horse, such as halters, bridles, horse-cloths,
saddle-cloths, blankets, nose-bags, currycombs and brushes, etc.,
should be destroyed.
Stables occupied by infected or suspected horses should be
disinfected daily by washing exposed surfaces with a 5 per cent
solution of carbolic acid, and nose-bags, halters, buckets used for
drinking-water, etc., should be carefully washed with the same
solution or with boiling water.

HEALTH AND DISEASE.

Corresponding to the Condition of

Points.
Health. Disease.
1. Temperament Vivacious. Dull.
2. Coat Healthy. Staring.
3. Membranes Pale and moist. Florid and dry.
4. Appetite Good. Bad.
5. Pulse 36 to 40 per minute. 50 to 90.
6. Respirations 8 to 12 per minute. 20 to 50.
7. Temperature, external Warm. Cold.
8. Temperature, internal 98°.4 to 100°. 101° to 105°.

On entering a stall to determine the state of an animal the

temperament and coat are first observed. To examine the
membranes, elevate the nostrils so as to obtain a good view of the
interior, ascertain the condition of the appetite by observation or a
trustworthy source. Take the pulse for a full minute. The best and
most usual place to take it is beneath the lower jaw, at a spot
corresponding to the swell of the jaw; this failing, as it sometimes
does in cases of extreme weakness, the artery inside the arm, near
where the leg joins the body, should be sought for. The number of
beats, whether soft or hard, and whether regular or intermittent,
should be noted.
The respirations are best observed at the flank, an inspiration
and expiration going to make up one respiration.
The external temperature is ascertained by feeling the ears
and extremities.
The internal temperature is obtained by means of a clinical
thermometer. Set the instrument at 98°.4 F., insert it in the dock,
and allow it to remain in the body three or four minutes.

DISEASES OF THE HORSE.

 Fig. 75.

1. Caries of the lower jaw

2. Fistula of the parotid duct
3. Bony excrescence or exostosis of the lower jaw
4. Swelling by pressure of the bridle
5. Poll-evil
6. Inflamed parotid gland
7. Inflamed jugular vein
8. Fungus tumor, produced by pressure of the collar
9. Fistula in the withers
10. Saddle-gall
11. Tumor of the elbow
12. Induration of the knee
13. Clap of the back sinews
14. Malanders
15. Splint
16. Ring-bone
17. A tread upon the coronet
18. Quittor
19. Sand-crack
20. Contracted or ring foot of a foundered horse
21. Capped hock
22. Malanders
23. Spavin
24. Curb
25. Swelled sinews
26. Thick leg
27. Grease
28. A crack in front of the foot, called cow-crack
29. Quarter-crack
30. Ventral hernia
31. Rat-tail

VETERINARY MEDICINES.

INTERNALLY ADMINISTERED.

Medicines that Act on the Stomach and Intestines or their

Contents.
Cathartics.—Agents that cause purgation: aloes, calomel, Epsom
salts, common salt and sulphur, croton, linseed, and castor oils,
injections and mashes.
Anthelmintics.—Agents that destroy or expel worms: nearly all
cathartics, tartarated antimony, and sulphide of iron.
Nauseants.—Agents that induce nausea: aloes and white
hellebore.
 Antacids.—Agents that counteract acidity: soap and the
carbonates of lime, magnesia, soda, and potash.
Alteratives.—Agents that bring about a healthy state of the
system: aloes, calomel, cod-liver oil, sulphur, nitrate of potash.
Cardiacs.—Agents that invigorate the system by stimulating the
stomach: Cayenne pepper, ginger, gentian, caraway seeds.
Demulcents.—Agents that lubricate or sheathe surfaces:
glycerine, gum-arabic, linseed, and starch.
Antidotes.—Agents that counteract the effects of poisons:
depending upon the kind of poison.
Medicines that Act upon the Brain, Nerves, and Nerve-centres.
Excitants.—Agents that stimulate the brain, nerves, and nerve-
centres, and thus increase their energy: alcohol, ammonia, arnica,
strychnia.
Narcotics.—Agents that are excitants, but whose action is
followed by depression of energy: camphor, henbane, belladonna,
opium.
Sedatives.—Agents that depress nervous power or lower
circulation: digitalis, hydrocyanic acid, tartarated antimony, and
chloroform.
Antispasmodics.—Agents that prevent or allay cramps: alcohol,
ethers, oil of turpentine, opium.
Medicines that Act upon Glands or Glandular Structures.
Stimulants.—Agents that act upon the glands generally:
calomel, oxide of mercury, iodine and its compounds.
Diuretics.—Agents that increase the secretion of urine: copaiba,
nitrate of potash, turpentine, resin.
Parturients.—Agents that cause contraction of the womb: ergot
of rye.
 Lithontriptics.—Agents that dissolve calculi: hydrochloric acid,
the fixed alkalies.
Diaphoretics.—Agents that cause perspiration: colchicum, tartar
emetic, acetate of ammonia, spirits of nitrous ether.
Medicines that Act upon the Muscular Fibre.
Tonics.—Agents that act gradually, and permanently improve
digestion and nutrition: gentian, the sulphates of iron, copper, and
zinc, cascarilla bark, camomile flowers.
Astringents.—Agents that cause contraction of muscular fibre:
alum, catechu, oak-bark, tannic acid.

EXTERNALLY ADMINISTERED.

Medicines that Act upon the Skin and External Parts by Direct Application.
Refrigerants.—Agents that diminish morbid heat of a part: salt
and cold water, solutions of acetate and subacetate of lead.
Discutients.—Agents that dispel enlargements: compounds of
iodine, soap liniment, camphor.
Rubefacients.—Agents that cause heat or redness of skin
without blistering: liniments of ammonia, tar and turpentine, vinegar.
Vesicants.—Agents that produce blisters: cantharides, tartar
emetic, croton-oil, hot water.
Caustics.—Agents that decompose the part to which applied:
carbolic, nitric, sulphuric, and hydrochloric acids; chlorides of
antimony and zinc, corrosive sublimate, nitrate of silver, sulphate of
copper, hot iron.
Pyogenics.—Agents that induce suppuration of wounds: liniment
and ointment of turpentine, black hellebore.
Detergents.—Agents that cleanse wounds and skin and excite
them to healthy action: acetate of copper, creosote, liniment of
sulphate of copper, ointment of chloride of ammonia and nitrate of
mercury, sulphur and some of its compounds.
 Astringents.—Agents that diminish discharge from wounds:
alum, sulphate of zinc, acetate of lead.
Antiseptics.—Agents that destroy putrid condition of wounds:
carbolic acid, salicylic acid, iodoform, charcoal, chloride of zinc,
nitrate of potash, permanganate of potash, yeast.
Traumatics.—Agents that excite healing in wounds: aloes,
myrrh, collodion, oil of tar, resin, solutions of sulphate of copper and
zinc.
Emollients.—Agents that soften and relax parts: fomentations,
lard, olive-oil, palm-oil, poultices.

DRUGS AND DOSES, AND HOW TO ADMINISTER THEM.

The most convenient method to administer medicine is either in

the form of a bolus, gelatine capsule, or drench. Before proceeding
to give medicine turn the animal around in stall in a position so that
he cannot run backwards. If giving a drench, either hold head up by
hand or pull it up by placing halter-shank over some high object,
pulling head up; then place horn or bottle inside of mouth. Take
plenty of time; induce the horse to move his tongue, instead of
pinching his throat and pulling out tongue, as is customary and
wrong in all cases. The tongue must pass back in mouth, or else
horse cannot swallow. To give a bolus, pull out tongue gently with
left hand, keeping the mouth open, pass bolus back over root of
tongue with right; by proceeding slowly very little trouble will be
experienced.
If the animal will eat, medicine in the form of powder (provided it
be not very repulsive to the taste) may be given in grain or mash, or
dissolved in the water given to drink.
Aconite (Tincture).—Useful in cases of fevers and inflammation.
Dose, 15 to 30 drops, repeated every three hours; should be given
in one ounce cold water.
 Alcohol.—Useful as a stimulant; one to three ounces, repeated
every five hours, given in eight ounces cold water.
Aloes (Barbadoes).—Useful as a cathartic. Dose, six to eight
drachms, with two drachms powdered ginger, made into a bolus or
pill; only one dose required.
Ammonia (Aqua).—Useful as a stimulant. Dose, one half ounce,
given three times a day in six ounces cold water.
Ammonia (Aromatic).—Useful in acute indigestion and flatulant
colic. Dose, one ounce every two hours until better.
Arnica (Tincture).—Useful in all cases of bruises and sprains;
should be applied frequently.
Arsenic.—Useful as a tonic or alterative. Dose, five grains given
three times a day in the food.
Belladonna (Tincture).—Useful in allaying pains and spasms.
Dose, one to two drachms, repeated every four hours.
Bromide of Potassium.—Useful as a nerve sedative. Dose, two
to four drachms three times a day, given in water.
Castor Oil.—Useful as a cathartic. Dose, one pint.
Chloral Hydrate—Useful in allaying pain. Dose, one-half ounce
every four hours until relief comes.
Chloroform.—Useful as an anæsthetic and anodyne in allaying
pain. Dose, one to three drachms given in four ounces cold water.
Digitalis (Tincture).—Useful as a heart stimulant. Also for coughs
and colds. Dose, one drachm three times a day.
Dovers Powders.—Useful for colds and coughs. Dose, three
drachms three times a day in feed.
Gentian.—Useful as a tonic. Dose of tincture, one ounce; of
ground, one half ounce—in feed three times a day.
Ginger.—Useful as a tonic and stimulant. Dose, tincture, one
ounce; ground, one ounce—in feed three times a day.
 Iodine (Tincture).—Useful when applied externally for sprains,
bruises, etc.
Iodoform.—Useful when applied to galls. Take one part iodoform
and three parts sulphur and cover the gall with the powder.
Iodoform one part, cosmoline nine parts, makes a good antiseptic
ointment.
Iron (Sulphate).—Useful for worms and as a tonic. Dose, one half
ounce three times a day.
Iron (Tincture).—Checks bleeding, when applied externally; is a
tonic internally. Dose, one half ounce in water three times a day.
Laudanum.—Useful in allaying pain. Dose, one to two ounces, to
be repeated every two hours if pain lasts.
Lead (Acetate, Sugar of Lead).—Useful for wounds, bruises,
sprains, and to allay inflammation. One ounce to one quart of water,
and apply often.
Linseed-oil.—Purgative. Dose, ten to thirty ounces.
Nitre (Saltpetre, Nitrate Potash).—Is useful in fevers, blood
disorders, and sluggish kidneys. Dose, one half to one ounce a day.
Podophyllin.—Useful in liver disorders. Dose, one to two
drachms once a day.
Quinine.—Useful in all debilitating fevers and where there is loss
of appetite. Dose, twenty to thirty grains five times a day in pills.
Resin.—Useful in kidney disorders. Dose, one half ounce three
times a day in feed.
Soda (Bicarbonate).—Useful in cases where an antacid is
required. Dose, six drachms three times a day in feed.
Soda Sulphate (Glauber Salts).—Useful where a saline laxative
is required. Dose, one pound.
Santonine.—Useful for worms. Dose, two to four drachms.
 Sweet Spirits Nitre.—Useful for colic and kidney trouble. Dose,
one to two ounces in cold water, to be repeated if necessary.
Zinc (Sulphate).—Useful for wounds. Add one quart water to one
ounce zinc and apply three times a day.
Bran Mash.—Place bran in clean pail and pour on as much
boiling water as it will absorb; add ½ ounce salt; stir and then cover
over to retain steam until sufficiently cool; add, if on hand, to the
bran a pound of well-boiled linseed.
Gruel.—Put 1 pound of meal in cold water, place over fire, and
stir until it boils; then simmer until thick; permit to cool until
temperature of new milk; add wineglass of spirits if animal be
exhausted.
Poultice.—Bran, with a little linseed-oil, steeped in hot water;
boiled turnips or carrots; linseed-meal and a little olive-oil.
Charcoal Poultice is made by adding linseed-meal to boiling
water and stirring until a soft mass is produced; then stir in
powdered charcoal and sprinkle some over the poultice when made
up. If desired as an astringent, add sulphate of zinc.
Mustard.—Add water to 1 pound of mustard until a thick paste;
rub on skin and then wash off carefully after 15 or 20 minutes. Apply
again in six hours if necessary.
Enemas.—Usually water at the temperature of the body, 3 to 6
quarts. Sometimes a little soap is added.
Cantharides.—If effect of blister be too severe, diminish by
dressing part with liniment of lead, acetate of lead, and olive-oil; or
wash off blister and dress with oil.
Gombault's Caustic Balsam is a most excellent vesicant.
Tonics should be given under observation of surgeon and effect
carefully watched, especially mineral tonics.
Mineral Tonics.—Sulphate of iron, 1 to 2 drachms, with 2 to 4
drachms of ginger; or sulphate of copper, ½ to 1 drachm, with
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