| Topic |
Reading |
| Introduction to the course |
- |
| The motion of stock prices |
"Guide to Money and Investing" chapter on stocks |
| Return, logarithmic return |
- |
| Present and future value |
- |
| Rick-free assets; discrete and continuous compound interest |
- |
| Sample mean, variance, standard deviation, confidence intervals |
- |
| Random variables, expectation, variance |
- |
| Normal distribution |
- |
| Brownian motion as limit of coin tossing (random walk). Geometric
Brownian motion |
- |
| Normality and independence of returns as a consequence of GBM |
- |
| Tests for normality: KS test, qq-plot |
- |
| Covarience, correlation |
- |
| Tests for independence: scatterplot, sample correlation coefficient |
- |
| Market portfolio, indices (eg Dow-Jones, S&P 500) |
- |
| Forwards |
Hull 1.3 |
| Futures |
Hull 1.4 |
| Introduction to options: long and short european puts and calls |
Hull 1.5 |
| Bachelier (payoff) diagrams |
- |
| Put-call parity |
Hull 9.4 |
| One-step binomial tree |
Hull Ch. 11 |
| Risk-neutral valuation |
Hull 11.2 |
| Multi-step binomial trees |
- |
| Black-Scholes formula |
Hull 13.8 |
| Stochastic calculus, Ito's lemma |
Hull 13.5 |
| Black-Scholes PDE |
Hull 13.6 |
| American options, evaluation with a tree |
Hull 11.5 |
| Implied volatility, volatility smile |
Hull 13.11 |
| Exotic options |
Hull Ch. 22 |
| Monte Carlo methods for pricing options |
- |
| Bonds |
- |
| Models of the interest rate. |
- |