Introduction to the theory and practice of mathematical finance: basics of derivative securities; interest rate and bonds; forward and futures contracts, hedging using futures contracts; option contracts and arbitrage relationship; binomial model, no-arbitrage pricing, risk-neutral pricing, and American options pricing; Brownian motion, Black-Scholes-Merton model, delta hedging, Greek letters, implied volatility, and volatility smile; classical and advanced portfolio management and execution models and strategies.
At the end of the term, students will be able to:
- Master the basics of derivatives, such as the mechanics, properties and functions of futures and options
- Use derivatives to conduct trading and hedging
- Price options using appropriate models including Black-Scholes-Merton model, binomial model and no-arbitrage principle
- Design basic portfolio management and execution strategies
- Master the basics of derivatives, including terms, characteristics, pricing and execution.
- Use appropriate trading strategies based on the derivative properties, such as straddle strategy and butterfly strategy.
- Construct hedging strategies based on different risk concerns, including delta-neutral strategy, delta-gamma-neutral strategy.
- Price options using different methods, including BSM model, Binomial model.
- Construct the optimal portfolio balancing return and risk.
- Designing the optimal asset execution strategy targeting at minimum trading cost or risk exposure.
(For Intake AY2019)
- 40.001 Probability, 40.004 Statistics (or 30.003/50.034 Introduction to Probability and Statistics) and 40.240 Investment Science (or 40.324 Fundamentals of Investing)
(For Intake AY2020 and onwards)
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