MA 570

This course introduces discrete-time financial models and their application to risk-neutral asset pricing and hedging. Students learn the concepts of arbitrage, martingale measure, and complete and incomplete markets. Using these concepts and models, students learn how to replicate payoffs of contingent claims using a portfolio or other securities and to construct martingale measures, hence providing both a value and hedging strategy for the claim. Pricing European and American options under the binomial tree asset price model is discussed in detail. The course also covers Brownian motion, geometric Brownian motion, the Black-Scholes theory for European options and option strategies and sensitivity analysis for options. Optional topics include perpetual American options and exotic options. <br> <br><font color="crimson">