Risks, Values and Prices in Finance, Lecture Notes by S. Zhang.
Investment Science, by D.G.
Luenberger, Oxford University Press (recommended only)
The course aims to familiarize students with basic quantitative tools
used in modern finance. The student
intending to take the course should have a background in optimization
at the level
and elementary probability as well as familiarity with engineering
economics concepts. There will be homework
requiring use of XPRESS-MP optimization package, and of MATLAB.
no textbook. The instructor will provide hand-outs in class.
1. Cash flow
streams, present value, bonds (1 week)
2. Bond price
volatility, duration and convexity (2 weeks)
analysis, cash flow matching and dedication:
Nielsen's notes. (1 week)
4. Option basics
(2 weeks) Midterm examination
5. Arbitrage in option pricing (2
2 of Zhang)
6. Option pricing models (2 weeks)(chapter
4 of Zhang)
7. Modern portfolio theory, Risk
measures VaR and CVaR (2 weeks, reference: relevant parts of Tutuncu and Cornuejols' notes above)
Mortgage-backed securities (2 weeks)
will be assigned here.
examination (21.3.2007, in class, closed notes):