This course provides an introduction to many of the central concepts in mathematical finance. The focus of the course is on arbitrage-based pricing of derivative securities. Topics include stochastic calculus, securities markets, arbitrage-based pricing of options and their uses for hedging and risk management, forward and futures contracts, European options, American options, exotic options, binomial stock price models, the Black-Scholes-Merton partial differential equation, risk-neutral option pricing, the fundamental theorems of asset pricing, sensitivity measures (“Greeks”), and Merton’s credit risk model.
Prerequisites
MA 540, which can be taken concurrently