Stochastic Calculus in Finance

6 units · Graduate

Intermittent: 6 units This is a graduate-level introduction to continuous-time equilibrium asset pricing models. Using tools from Ito calculus, the first part of the course covers the benchmark case of complete, frictionless markets, for which a fairly general theory and a number of solvable examples have been developed. The second part of the course then provides an overview of cutting-edge research on extensions of the baseline model that account for "flaws and frictions" such as heterogeneous beliefs, trading costs, or asymmetric information. In the third part of the course, students will present a related research paper, chosen together with the instructor in accordance with their background and research interests. (One 80 minute lecture) Prerequisites: ( 21-235 Min. grade B or 21-355 Min. grade B or 21-455 Min. grade B) and ( 21-237 Min. grade B or 21-373 Min. grade B)