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INTRODUCTION TO MATHEMATICAL

FINANCE AND DERIVATIVES (PhD)

Lecturer:
Exercises:
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Lecture Time:
Exercise Time:
First lecture:
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Prof. Dr. Marc Chesney und PD Dr. Walter Farkas


Jacob Stromberg
http://www.vorlesungen.uzh.ch/WS0809/suche/e-50405961.termine.html
Tuesday 10:15 12:00 H
Tuesday 12:15 13.00 H
16. Sptember 2008
English

Contents:
Discrete

time models:
Absence of arbitrage and existence of martingale measures
Market completeness and uniqueness of martingale measure
Set of arbitrage-free prices of a contingent claim
Valuation of some derivatives in the binomial model
Passage to limit in a scaled binomial model
Derivation of the Black-Scholes formula, greeks
American options in a complete market setting

Continuous time models:


Black and Scholes option pricing theory and change of probability
American options and hitting times
Some Exotic options
Description of the course:
The course aims at providing an introduction to discrete and continuous time
finance. Option pricing theory will be presented in different model settings.
Moreover, the basic concepts like absence of arbitrage, market completeness and
optimal stopping will be discussed. It is recommended to follow the parallel course
about mathematical foundations of finance.
Grades: The final grades will be based on oral examination.

Literature:
BOOKS
1. DANA, R.A. and JEANBLANC M.
Marchs financiers en temps continu, valorisation et quilibre
Economica, 1994.
2. ELLIOTT R. and KOPP E.
Mathematics of Financial Markets
Springer Finance, 1998.
3. FOELLMER H. and SCHIED A.
Stochastic Finance, An Introduction in Discrete Time.
De Gruyter 2002.
4. HULL J.
Options, Futures and Other Derivative Securities
Prentice Hall, 2000.
5. JARROW R.A.
Finance Theory
Prentice Hall, 1988.
6. JEANBLANC M., YOR M. and M. CHESNEY
Mathematical Methods for Financial Markets
Forthcoming Springer Verlag
7. KARATZAS I. and SHREVE S.
Brownian Motion and Stochastic Calculus
Springer Verlag.
8. LAMBERTON D. and LAPEYRE B.
Introduction to Stochastic Calculus Applied to Finance,
Chapman & Hall, London, 1996.
9. MERTON R.
Continuous Time Finance
Basic Blackwell., 1990.
10. PLISKA S. R.
Introduction to Mathematical Finance, Discrete Time Models
Blackwell Publications Inc. 1997.
11. REVUZ D. and YOR M.
Continuous Martingale and Brownian Motion
Springer Verlag, third dition.
12. SANDMANN K.
Einfhrung in die Stochastik der Finanzmrkte
Springer Verlag, 1999.

13. WILMOTT P.
Derivatives : The Theory and Practice of Financial Engineering
John Wiley, 2000.
ARTICLES
1. BARONE-ADESI G. and R. WHALEY,
Efficient analytic approximation of American option values
Journal of Finance, 42:301-320, 1987.
2. CARR P., ELLIS K. and V. GUPTA
Static hedging of path dependant options
Journal of Finance, 53:1165-1190, 1998
3. CARR P., JARROW R. and R. MYNENI
Alternative Characterization of American Put Options
Mathematical Finance, 2:87-105, 1992.
4. EL KAROUI N. and JEANBLANC M.
Options exotiques
Finance, 20:49-67, 1999
5. GARMAN M.B. AND S.W. KOHLHAGEN :
Foreign Currency Option Values
Journal of International Money and Finance, 1983, 2: 231-237.
6. MERTON R.
Theory of Rational Option Pricing
The Bell Journal of Economics and Management Science, 4.1973.
7. RICH D.R.
The mathematical foundations of barrier option-pricing theory
Advances in Futures and Options Research, 7:267-311,1994