Pricing and Hedging (FE620)

Introduces you to basic financial derivatives theory and modeling, arbitrage, hedging, and risk. Acquire a serious grounding in theory, reviewing It's lemma, the diffusion equation, partial differential equations, and the Black-Scholes model and formulae. Learn how to estimate the volatility of historic data. Apply asset price random walks and log-normal distribution. Practical examples, based on numerical techniques, such as finite difference and binomial methods, are exploited to value options. Perform modelling and analysis drawn from financial information and software available on the internet. Prerequisite: Multivariable Calculus, FE610WS, and programming in C, C++ or JAVA.