The primary focus is on pricing and hedging contingent
claims -- that is assets with option-like features. Examples include calls,
puts, structured products, corporate securities, and real options. The models
to be studied include Black-Scholes, binomial, and risk-neutral Monte Carlo
pricing. Specific topics include simple no-arbitrage pricing relations (most
notably put-call parity), the Greeks (e.g., delta, gamma, theta, vega), implied
standard deviations and their statistical properties, exotic options, portfolio
insurance and other dynamic option trading strategies, and futures and forward
contracts. By its very nature, the course uses mathematics and statistics
intensively. However of all subjects in finance, the area of derivatives
securities has used these tools to the greatest profit. Our goals are 1) to
become proficient at the fundamental option calculations and 2) to take a peak
inside the "black box" so as to understand the pros and cons of the
most widely used models. (Rev. 4/11-DS)
