MA 395: Topics in Stochastic Finance

Credits: 3:0


Financial market. Financial instruments: bonds, stocks, derivatives. Binomial no- arbitrage pricing model: single period and multi-period models. Martingale methods for pricing. American options: the Snell envelope. Investment portfolio: Markovitz’s diversification. Capital asset pricing model(CAPM). Utility theory.

Trading in continuous time: geometric Brownian motion model. Option pricing: Black-Scholes-Merton theory. Hedging in continuous time: the Greeks. American options. Exotic options. Market imperfections. Term-Structure models: Vasicek, Hull-White and CIR models. HJM model. Forward LIBOR model.


Suggested books and references:

  1. Luenberger, D. V., , Oxford University Press, 1998.
  2. Roman, S., Introduction to the Mathematics of Finance, Springer, 2004.
  3. Shiryaev, A. N., Essentials of Stochastic Finance, World Scientific, 1999.
  4. Shreve, S. E., Stochastic Calculus for Finance I: The Binomial Asset Pricing Model, Springer, 2004.
  5. Shreve, S. E., Stochastic Calculus for Finance II: The Continuous Time Models, Springer, 2004.

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Contact: +91 (80) 2293 2711, +91 (80) 2293 2265 ;     E-mail: chair.math[at]iisc[dot]ac[dot]in
Last updated: 15 Nov 2019