This course will introduce the basic ideas and methods of stochastic calculus and will apply these methods to financial models, particularly the pricing and hedging of derivative securities. We will start by introducing the concepts of arbitrage, hedging and risk-neutral pricing in a discrete-time setting, and will then move to more sophisticated continuous-time models. Along the way we will cover the following mathematical topics: Brownian motion, stochastic integrals, Itô's formula, martingales, and CMG transformations.
Prerequisites: A solid knowledge of calculus, linear algebra and undergraduate probability will be assumed. See here for some review problems.
Instructor: Hanna Jankowski
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Office: N621B Ross
Office hours: MW 2-3, or by appointment. No drop-ins, please.