Financial Modeling

Winter 2018, PSTAT 223B

M-W 9:30-10:45, HSSB 1207

Jean-Pierre Fouque

fouque at pstat.ucsb.edu

Office Hours: W 11am-12pm South Hall 5504 or by appointment

Agenda:

Midterm 1: Wednesday February 14

Midterm 2: Wednesday March 14

Week 1 (classes cancelled due to final exams of Fall quarter):

  • January 8: No class.
  • January 10: No class

    Week 2:

  • January 15: Holiday.
  • January 17: One period models. Arbitrage. Replication. Risk-neutral valuation.

    Week 3:

  • January 22: Multi-period models.
  • January 24: Black-Scholes model. Self-financing portfolios and no-arbitrage pricing (Chapters 6 and 7). HW1 due Wednesday February 2: p. 63-64: 4.2 and 4.5, p. 80-82: 5.5, 5.8, 5.10, 5.11, p. 91: 6.1

    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