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