Course ObjectiveThe purpose is to introduce fundamental concepts underlying arbitrage
theory and martingale approach with the emphasis on practical
applications in derivative pricing.
Course ContentThis course is an introduction to stochastic processes and their
application in Finance. The purpose is to introduce fundamental concepts
underlying arbitrage theory and martingale approach with the emphasis on
practical applications in derivative pricing. It consists of two major
parts: Fundamentals (period 1) and Derivatives (period 2).
The first part introduces such notions as stochastic processes, flow of
information, filtration, martingale, self-financing portfolio,
arbitrage, replication/hedging, complete markets, Brownian motion, Itô's
calculus, Feynman-Kac theorem, change of measure, and Girsanov's
It considers the binomial tree model and Geometric Brownian Motion to
price simple derivatives.
Teaching MethodsTwo lectures per week and tutorials: problem solving and computer-based
Method of AssessmentAssessment of two computer assignments (each 12.5%) and written exam
LiteratureBjork "Arbitrage Theory in Continuous Time"
Target AudienceMSc Honours program in Quant Risk Management
MSc Financial Econometrics
Recommended background knowledgeMatlab (or comparable) experience desirable
|Language of Tuition||English|
|Faculty||School of Business and Economics|
|Course Coordinator||dr. M. Boes|
|Examiner||dr. M. Boes|
dr. M. Boes
You need to register for this course yourself
Last-minute registration is available for this course.
|Teaching Methods||Study Group, Lecture|
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