# Financial Modeling

## Winter 2019, PSTAT 223B

## M-W 9:30-10:45, PHELP 2532

**Jean-Pierre Fouque**

fouque at pstat.ucsb.edu
**Office Hours: W 11am-12pm South Hall 5504 or by appointment**

## Agenda:

**Midterm 1: TBA**

**Midterm 2: TBA**

**Week 1: **

**January 7: ** One period models. Arbitrage. Replication. Risk-neutral valuation.
**January 9: ** Multi-period models.
**Week 2: **

**January 14: ** Black-Scholes model. Self-financing portfolios and no-arbitrage pricing (Chapters 6 and 7).
**HW1 due Monday January 28: p. 63-64: 4.2 and 4.5, p. 80-82: 5.5, 5.8, 5.10, 5.11, p. 91: 6.1**
**January 16: ** Black-Scholes formula. Greeks.
**Week 3: **

**January 21: ** Holiday.
**January 23: **
**Course Outline**

An introduction to stochastic models in finance with applications to valuation and hedging of derivatives in equity, fixed income, and credit markets, and to portfolio allocation.
**Prerequisites:**

PSTAT 213 A-B-C Introduction to Probability Theory and Stochastic Processes (or equivalent)

PSTAT 223A Stochastic Calculus and Applications (or equivalent)

__TEXT__:

Arbitrage Theory in Continuous Time by Tomas Bjork, 3rd ed, Oxford 2009