Feb 01, 2023  
2022-2023 Undergraduate Catalog 
    
2022-2023 Undergraduate Catalog

STAT 47301 - Introduction To Arbitrage-Free Pricing Of Financial Derivatives


This course exposes students to a number of financial economics concepts related to arbitrage-free option pricing in the binomial market model and the Black-Scholes model. Specific models include: (1) Options and parity relationship between options (2) Option Pricing under the Binomial model (3) Option Pricing under the Black-Scholes model (4) Option hedging and the market maker’s overnight profit (5) Black Scholes theory with Brownian motion and Ito calculus (6) Risk-neutral option pricing and Monte Carlo valuation (7) Stochastic interest rates and Stochastic Volatility. This course provides the background for Course MFE of the Society of Actuaries and Course 3F of the Casualty Actuarial Society. 

Preparation for Course
P: MA 27300 and either STAT 51100 or ECON 27000, with grades of C- or better.

Cr. 3.