Course Description (from USOS web)

The aim of this course is to familiarize students with the key topics in modern finance. The first part of the course introduces key “underlying” instruments – stocks, bonds, FX etc. – and discusses the main theories developed for thinking about the relationship between risk and return, and the pricing of assets more generally. The second part of the course develops tools and techniques used for the valuation of financial derivatives, i.e. claims that promise some payment contingent on the behavior of a given underlying instrument. Finally, the third part of the course investigates theoretical and empirical arguments for market efficiency and behavioral finance.

Detailed content

• Preliminaries: basic financial arithmetic, • No arbitrage axiom: the bedrock of modern finance, • Risk and return principles: the Markowitz framework, • Capital Asset Pricing Model: theory and applications, • Derivatives: more sophisticated instruments call for more sophisticated tools, • Replication and risk neutrality: binomial trees, • Martingales and the fundamental theorem of finance, • From binomial trees to continuous-time limit: the Black-Scholes formula

Literature

• Baxter, M., & Rennie, A. (1996) Financial Calculus: An introduction to derivative pricing. Cambridge University Press.

• Blyth, S. (2013). An Introduction to Quantitative Finance. Oxford University Press.

• Derman, E. (2013). The Young Person’s Guide to Pricing and Hedging. Mimeo, www.ederman.com

• Ross, S.A. (2005). Neoclassical Finance. Princeton University Press.

Lectures (Winter 2022) : Slides, Past Exams