Arbitrage Pricing
People
Course director
Assistant
Description
Prerequisites
Statistics, Financial Econometrics
The course is structured along the following topics.
- Brief review of probability
- No-arbitrage in the static, finite-dimensional case
- No-arbitrage in a dynamic (in)finite-dimensional setting
- Brownian motion
- Introduction to the stochastic calculus
- Feynman-Kac theorem
- Black-Scholes model
- (Affine) term structure models
All material will be provided.
Objectives
Arbitrage Pricing develops the notion of ‘no-arbitrage’ or ‘no free lunch’ from first principles. After having taken the course, students will be familiar with the general concept of no-arbitrage, and its use in the pricing of uncertain cash flows with common models used in industry and academia.
Teaching mode
In presence
Learning methods
Our classes will simultaneously develop the theory and its applications. Students will be introduced to the must-know models for a career in modeling and pricing.
Examination information
A midterm will acount for 30% of the grade, a final written exam for 70%.
Bibliography
- Björk, Tomas. Arbitrage theory in continuous time. Fourth edition. Oxford: Oxford University Press, 2020.
- Brigo, Damiano. Interest rate models: theory and practice. 2nd ed.. Berlin etc.]: Springer, 2006.
- Shreve, S.E.. Stochastic Calculus for Finance II: Continuous-Time Models. Berlin: Springer, 2004.
- Øksendahl, B.. Stochastic Differential Equations.. Springer, 2000.
Education
- Master of Science in Economics in Finance, Lecture, 1st year
Prerequisite
- Financial Econometrics, Mancini L., Ye Y., SA 2022-2023
- Statistics, Mira A., Ghilotti L., Peluso S., SA 2021-2022
