This course is an introduction to the stochastic models used in Finance and Actuarial Science. Students will be exposed to the basics of stochastic calculus, particularly focusing on Brownian motions and simple stochastic differential equations. The role that martingales play in the pricing of derivative instruments will be investigated. Some exotic equity derivative products will be explored together with stochastic models for interest rates.
[ Prequisites: ACT 370 and STA 347 ]
Tentative Topics List:
Review of Arbitrage in Discrete Time and Tree models
Interest rate trees
Continuous time limit of binomial model
Monte-Carlo option valuation
Options on Correlated Assets
Stochastic Differential Equations
Black-Scholes dynamic hedging and PDEs
Continuous time short rate models
Time & Location
Time: Tuesday's 2pm - 5pm
Office Hours: Tuesday's 10:00am to 12:00 noon in my office SS6005
The recomended (but not required) textbooks for this course are:
Options, Futures and other Derivatives, J. Hull, 6th edition, Prentice Hall
Introductory Stochastic Analysis for Finance and Insurance, X.S. Lin, Wiley Series in Probaility and Statistics
The final grade for undergraduate students (ACT 460) will be based on an exam, a term test and quizzes
IF YOU MISS THE TERM TEST, YOU MUST INFORM ME WITHIN 1 WEEK - OTHERWISE YOU WILL RECEIVE A ZERO. The make-up will consist of a 40 minute verbal test with the TA and Prof. Jaimungal.
The final grade for graduate students (STA 2502) will be based on an exa, a term test, quizzes and a final project:
early Jan, 13
The project involves two components a written component and a verbal component. The written component consists of an approximately 20 page report on a topic related to the course and involving some computer implementations. The verbal component will be based on the written report and involves the student presenting their report and answering related questions.
Your TAs are Jason Ricci and Zhen Qin Ph.D. students in the Deparment of Statistics.
I will hold office hours on Tuesday's from 10:00am to 12:00 noon in my office SS6005.