Upon successful completion of this course the students should be able to
The aim of this course is to provide a detailed treatment of the main theoretical foundations of contemporary derivative pricing theory and give students necessary quantitative skills in computation of prices of various derivative securities.
On the theoretical side, the course presents in-depth coverage of the absence of arbitrage pricing principle, stochastic processes for financial prices, the continuous-time Black-Scholes model, binomial option pricing, and pricing of options using Monte-Carlo simulation methods.
On the practical side, using the open source R statistical programming language, the students learn how to implement the computation of option prices using closed-form solutions, binomial trees, and simulation methods. In addition, the students learn how to simulate prices of financial assets. Last but not least, using real-life data the students learn how to estimate historical volatility and how to compute the implied volatility.
School of Business and Law