This page will record the topics we cover, with links to problem sets and handouts. Please read the relevant sections of the course text by Stampfli and Goodman before the lecture in which it is discussed. Reserve reading is strongly suggested.
| Lecture | Topics | Reading | Assignments |
|---|---|---|---|
| 1, 9/5 | Financial Markets and derivatives; Introduction to binomial models One bond/one-stock model; Forward contracts |
Text: 1.1-1.3, 1.6 Reserve: Hull, Chapter 1 Lecture 1 outline(pdf file) Corrections to lecture 1 outline |
Problems |
| 2, 9/7 | No arbitrage pricing of forward contracts;
no arbitrage in the one-period model |
Text: 1.2,1.3, 2.1 Reserve, Hull, pp. 99-109 Lecture 2 outline(pdf file) |
Problems |
| 3, 9/12 | More on no-arbitrage pricing of forward contracts and in one-period models | Read Lecture 2 outline(pdf file) before coming to class! | |
| 4, 9/14 | Replicating portfolio principle; Valuing forward contracts, put-call parity; pricing derivatives in the one-period binomial model | Text: Chapter 2 | Problems for lectures 3,4 |
| 5, 9/19 | The one period binomial model; risk-neutral measure and the fundamental theorem of asset pricing, I. |
Text, Chapter 2 and Lectures 4-5 notes. | |
| 6, 9/21 | The risk neutral measure and pricing by expectation | Class notes | |
| 7, 9/26; | Introduction to multi-period binomial trees | Text, sections 3.1, 3.2, 3.3 Reserve reading, Hull, Chapter 11. |
Problems |
| 8, 9/28 | Multi-period tree models continued | Text, 3.4, 3.5, and class notes
Lecture 8 notes Hull, Chapter 11. |
|
| 9, 10/3 | Expectation and the risk-neutral measure | Class notes--see lecture 8 | |
| 10, 10/5 | Conditional expectation | Class notes | |
| 11, 10/10 | Recitation lecture | ||
| 12, 10/12 | Pricing by conditional expectations, portfolio processes no arbitrage in binomial tree model |
Class notes to appear | |
| 13, 10/17 | FIRST MIDTERM, IN CLASS! | ||
| 14, 10/19 | Conditional expectations and applications to pricing | Class notes | |
| 15, 10/24 | Conditional expectations, pricing and martingales | Lecture Notes | |
| 16, 10/26 | Martingales and portfolios | ||
| 17, 10/31 | Portfolio replication Central Limit Theorem |
Notes on portfolio
replication Notes on normal r.v.'s and the Central Limit Theorem |
See problems page for homework due on 11/2 |
| 18, 11/2 | Brownian motion | Class Notes on Brownian motion | |
| 19, 11/7 | Brownian motion and the Black-Scholes model | ||
| 20, 11/9 | Brownian motion and the Black-Scholes model | Chapter 4, Models, pricing and Black-Scholes pricing | |
| 21, 11/14 | The Black-Scholes model | Chapter 5 | |
| 22, 11/16 | Black-Scoles, estimating parameters, calculating prices, deriving the Black-Scholes formula | Chapter 5, Lecture notes on binomial tree approximation | |
| 23, 11/21 | Black-Scoles, continued | ||
| 24, 11/28 | Midterm II | ||
| 25, 11/30 | Ito calculus introduction | Chapter 6, Class notes; Intro to Ito calculus | |
| 26, 12/5 | The Black-Scholes pde, hedging, and the greeks | Chapters 6 and 7, Ito calculus and Black-Scholes | |
| 27, 12/7 | The Black-Scholes pde, hedging, and the greeks, continued | Chapters 6 and 7, Portfolio analysis with the greeks | |
| 28, 12/12 | The Black-Scholes pde, hedging, and the greeks, continued | Chapters 6 and 7, More about Black-Scholes and the Greeks |