ADVANCED DERIVATIVE SECURITIES
Introduces continuous-time financial models essential for the advanced analysis of derivative securities. Discuss the fundamental mathematical concepts and tools from continuous-time stochastic processes including Brownian motion, Poisson processes, stochastic calculus, and change of measure. This provides a framework for analyzing derivative securities including their pricing, hedging, and risk management. In particular, covers the Black-Scholes and stochastic volatility models for equity options; basic term-structure modeling for interest rate derivatives; and reduced-form credit-risk models. Emphasis is put on applications and economic interpretation rather than mathematical rigor.
Prerequisites & course information
Requisites: Declared in Financial Economics MS Course Designation: Grad 50% - Counts toward 50% graduate coursework requirement Repeatable for Credit: No Last Taught: Spring 2024 Learning Outcomes: 1. Build models for pricing and risk-managing equity, interest rate, and credit derivatives. Audience: Graduate 2. Explain the relationship between martingales and stochastic discount factors. Audience: Graduate 3. Apply the rules of stochastic calculus to derive valuation equations for contingent claims relying on the concepts of no-arbitrage and replication. Audience: Graduate 4. Price derivatives using analytical methods, including log-normal and exponential-affine models. Audience: Graduate 5. Price derivatives using numerical methods, including Monte Carlo simulations and numerical solutions to dynamic valuation equations. Audience: Graduate Learning Outcomes: 1. Build models for pricing and risk-managing equity, interest rate, and credit derivatives. Audience: Graduate 2. Explain the relationship between martingales and stochastic discount factors. Audience: Graduate 3. Apply the rules of stochastic calculus to derive valuation equations for contingent claims relying on the concepts of no-arbitrage and replication. Audience: Graduate 4. Price derivatives using analytical methods, including log-normal and exponential-affine models. Audience: Graduate 5. Price derivatives using numerical methods, including Monte Carlo simulations and numerical solutions to dynamic valuation equations. Audience: Graduate
Sources
- Course catalogue ↗2026-2027