Second
Semester of Academic Year 2013-2014
MA 373 Financial Engineering II
Syllabus
Pre-requisite: MA 372 (Stochastic Calculus for Finance) or equivalent
Continuous time financial market models, Black-Scholes-Merton model, Black-Scholes PDE and formulas, risk-neutral valuation, change of numeraire, pricing and hedging of contingent claims, Greeks, implied volatility, volatility smile; Options on futures, European, American and Exotic options; Incomplete markets, market models with stochastic volatility, pricing and hedging in incomplete markets; Bond markets, term-structures of interest rates, bond pricing; Short rate models, martingale models for short rate (Vasicek, Ho-Lee, Cox-Ingersoll-Ross and Hull-White models), multifactor models; Forward rate models, Heath-Jarrow-Morton framework, pricing and hedging under short rate and forward rate models, swaps and caps; LIBOR and swap market models, caps, swaps, swaptions, calibration and simulation.
Texts:
- T. Bjork,
Arbitrage Theory in Continuous Time, 3rd edition,
Oxford University Press, 2003.
- J.C. Hull,
Options, Futures and Other Derivatives, 8th Edition,
Pearson India/Prentice Hall, 2011.
References:
- S. Shreve,
Stochastic Calculus for Finance, Vol. 2,
Springer India, 2004.
- R. A. Dana and M. Jeanblanc,
Financial Markets in Continuous Time,
Springer, 2001.
- D. Brigo and F. Mercurio,
Interest rate models:Theory and Practice,
Springer, 2006.
- N. H. Bingham and R. Kiesel,
Risk Neutral Valuation, 2nd Edition,
Springer, 2004.
- J.Cvitanic and F. Zapatero,
Introduction to the Economics and Mathematics of Financial Markets,
Prentice-Hall of India, 2007.
- M. Musiela and M. Rutkwoski,
Martingale Method in Financial Modelling, 2nd edition,
Springer, 2005.
- P. Wilmott,
Derivatives: The Theory and Practice of Financial Engineering,
Wiley, 1998.
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