Financial Market Mathematics - Seconda parte (2008/2009)

Learning outcomes

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The second part of this module refers to the following topics:

1. Option Pricing: binomial model with one, two or few steps and with one or more stocks. 2. The Risk--Neutral Valuation, Backward Induction, Self--financing strategies, Static and Dynamic Hedging. 3. Valuation of European and American Options. 4. From the CRR model to the Black--Scholes (BS) Model. Alternative derivation of BS equation from the Heat Equation. 5. Interest rates: from discrete to continuous time. Few discrete models.

Core Reading:

- John Hull, "Options, Futures, and Other Derivatives", Sixth Edition [Ch 1 excluding 1.4; Sections 2.10, 3.1, 5.1, 5.2, from 8.1 to 8.3 and 8.13, from 9.1 to 9.4, from 11.1 to 11.5 and 11.8]
- Marek Capinski and Tomasz Zastawniak, "Mathematics for Finance: An Introduction to Financial Engineering", Springer, ISBN 1-85233-330-8 [Chapters 1, 3 escluding section 3.3, 4, 6 excluding 6.2, 7 excluding 7.5, 8]
- Simon Benninga, "Financial Modeling", McGraw-Hill (chapters 13 and 14, optional)
- Notes from lectures

The final exam is based on a written exam paper and an oral examination.