everything.study
15.450

Analytics of Finance

5-0-7 units · Graduate

Introduces a set of modern analytical tools that specifically target finance applications. Topics include statistical inference, financial time series, event study analysis, and basic machine learning techniques for forecasting. Focuses on how to apply these tools for financial and macro forecasting, quantitative trading, risk management, and fintech innovations such as Kensho's "financial answer machine'' and big-data lending platforms. 15.457 is a more advanced version of 15.450 . Students with solid background in statistics and proficiency in programming are encouraged to register for 15.457 .

Fall 2010

This course covers the key quantitative methods of finance: financial econometrics and statistical inference for financial applications; dynamic optimization; Monte Carlo simulation; stochastic (Itô) calculus. These techniques, along with their computer implementation, are covered in depth. Application areas include portfolio management, risk management, derivatives, and proprietary trading.

Readings

  • [Back]= Back, Kerry. A Course in Derivative Securities: Introduction to Theory and Computation . New York, NY: Springer, 2005. ISBN: 9783540253730.
    Listed reading
  • [CL&M]= Campbell, John Y., Andrew W. Lo, and A. Craig MacKinlay. The Econometrics of Financial Markets . Princeton, NJ: Princeton University Press, 1996. ISBN: 9780691043012.
    Listed reading
  • [Cochrane]= Cochrane, John H. Asset Pricing . Revised ed. Princeton, NJ: Princeton University Press, 2005. ISBN: 9780691121376.
    Listed reading
  • [D&S]= DeGroot, Morris, and Mark J. Schervish. Probability and Statistics . 3rd ed. Reading, MA: Addison-Wesley, 2002. ISBN: 9780201524888.
    Listed reading
  • [Tsay]= Tsay, Ruey S. Analysis of Financial Time Series . 2nd ed. New York, NY: John Wiley & Sons, 2005. ISBN: 978047169074.
    Listed reading
  • The lectures will include suggestions for additional readings for each topic. Since there is no single textbook covering all the relevant topics, several books will be used. [Back] covers topics in stochastic calculus and derivative pricing. [Tsay] covers time-series methods in financial econometrics, and is the most frequently used textbook. [Cochrane] and [CL&M] cover advanced topics in financial econometrics. [D&S] covers basic background in probability and statistics and can be used for review as necessary.
    Listed reading
  • [Back], Chapter 1.
    Listed reading
  • Derman, Emanuel, and Iraj Kani. “The Volatility Smile and Its Implied Tree.” Goldman Sachs Quantitative Research Notes, January 1994.
    Listed reading
  • LEC #: 2 · TOPICS: Stochastic calculus and option pricing · READINGS: [Back], Sections 2.1-2.6, 2.8-2.9, 2.11, 13.2, 13.3, and Appendix B.1.
    Reading assignment
  • Boyle, Phelim, Mark Broadie, and Paul Glasserman. “Monte Carlo Methods for Security Pricing.” Journal of Economic Dynamics and Control 21 (1997): 1267-1321.
    Listed reading
  • Glasserman, Paul. Sections 2.2, 4.1, 4.2, 7.1, and 7.2 in Monte Carlo Methods in Financial Engineering . New York, NY: Springer, 2003. ISBN: 9780387004518.
    Listed reading
  • Cover, Thomas M. “Universal Portfolios.” Mathematical Finance 1, no. 1 (1991): 1-29.
    Listed reading
  • Bertsimas, Dimitris, and Andrew W. Lo. “Optimal Control of Execution Costs.” Journal of Financial Markets 1 (1998): 1-50.
    Listed reading
  • Cochrane, John H. “New Facts in Finance.” Federal Reserve Bank of Chicago: Economic Perspectives QIII (1999): 36-58.
    Listed reading
  • Efron, Bradley, and R. J. Tibshirani. Sections 4.2-4.3, 10.1-10.2, and 12.1-12.5 in An Introduction to the Bootstrap . New York, NY: Chapman and Hall, 1994. ISBN: 9780412042317.
    Listed reading
  • Davison, A. C., and D. V. Hinkley. Chapter 2 in Bootstrap Methods and Their Application . Cambridge, UK: Cambridge University Press, 1997. ISBN: 9780521574716.
    Listed reading
  • Stambaugh, Robert F. “Predictive Regressions.” Journal of Financial Economics 54 (1999): 375-421.
    Listed reading
  • Andersen, Torben G., Tim Bollerslev, Peter Christoffersen, and Francis X. Diebold. “Volatility and Correlation Forecasting.” In Handbook of Economic Forecasting . Edited by Graham Elliott, Clive W. J. Granger, and Allan Timmermann. Amsterdam: North-Holland, 2006, pp. 778-878. ISBN: 9780444513953.
    Listed reading
  • Ghysels, Eric, Pedro Santa-Clara, and Rossen Valkanov. “Predicting Volatility: Getting the Most Out of Return Data Sampled at Different Frequencies.” Journal of Econometrics 131 (2006): 59-95.
    Listed reading

Prerequisites & course information

Prereq: 15.401 , 15.414 , or 15.415 G (Fall) 5-0-7 units Credit cannot also be received for 15.457

Sources