# derivatives pricing, # financial engineering, # continous time finance, # stochastic calculus, # calibration
The lecture notes correspond to principles of Derivatives or Financial Engineering. Rather than introducing many models and techniques of derivatives pricing, I tried to explain the basics in more detail. I used handy algebras rather than high-level mathematics, and tried to analyze concrete and small models rather than generalized models. It is because we expect that a sound base can lead to brilliant applications.
Some chapters are explained somewhat differently from the popular textbooks. Examples are the proof of the Black-Scholes formula, derivation of barrier option pricing formulas, estimation of term structures, and stepwise derivation of volatility pricing formulas, among others. This is because the mathematical tools used here, I believe, are good building blocks to many applications on their own.
[last update: 2023-11-01]
1. Introduction
2. Review of Markets, Players and Conventions
3. Cash Flow Engineering and Forwards
4. Simple Interest Rate Derivatives
5. Swap Engineering [*]
6. Repo Transactions
7. Dynamic Replication: Self-Financing Portfolio
8. Option Mechanics[**]
9. Option Combos
10. Convexities of Financial Products
11. Bond Price and Short Rate Processes[**]
12. Theoretical Tools: The Fundamental Theorem[***]
13. Numerical Tools[***]
14. Derivation of Black-Scholes Formula[***]
15. Pricing Foreign Assets
16. Pricing Barrier Options[***]
17. Interest Rate Models[**]
18. Term Structure Models[***]
19. Volatility Pricing[***]
20. Volatility Smile
21. Pricing Jump Processes[***]
22. Credit Derivatives
23. Equity Products
24. Swap Measure and Swaption
25. Comprehensive Exercises