MATH 387

Topics include stochastic models of financial markets; forward and futures contracts; European options and equivalent Martingale measures; hedging strategies and management of risk; term structure models and interest rate derivatives; and optimal stopping and American options. Ito’s lemma and Girsanov’s theorem to develop methods for pricing financial derivatives are examined. Pricing problems are considered in discrete (Binormal option price model) and continuous-time (Black-Scholes Merton price model). Credit will be granted for only one of MATH 389 or MATH 471 offered in 2012-2013.