Last updated: April 30, 2004

Time and Place:	Spring term 2004: The course will meet on Mondays 1:30-4:30 in Room 306, Uris Hall.
Schedule:	First class: Monday, January 26. Last class: Monday, April 19.

Project Presentation Schedule:	All presentations will be in Room 305 (not 306). Every student is required to attend at least one other presentation besides their own. May 3, 10:00: Pricing basket credit derivatives using Monte Carlo simulation (Bo Peng, Yu Tao, Ben Zhang) May 3, 11:00: Pricing interest rate options using the LIBOR market model (Andrew Evanchik, Sier Han Ng, Yevgeny Litvin) May 3, 12:00: Calibration of option pricing models (Sandeep Kumar, Suraj Kripalani) May 3, 1:00: Monte Carlo simulation of single-asset path-dependent and multi-asset options under Heston’s SV model (Eisuke Suzuki, Yoshio Yamada) May 3, 2:00: Credit default swap valuation by Monte Carlo simulation (Frank Mote, Alan Weiss) May 4, 2:00: Monte Carlo pricing of Bermudan options and applications to real options (Nicola Chiara, Jennifer Lindsay, Nuria Periera) May 4, 3:00: Estimating Greeks via Monte Carlo simulation (Gustaf Bonde, David Camitta, Eric Kam-Y. Kwong) May 4, 4:00: Simulation for estimating Greeks of multi-asset path-dependent options (Siddhartha Dastidar, Marat Sadykov) For more information about the course project click here
	See the handouts page for job possibilities and for pdf files from the two guest lectures.
Course Description:	This course will provide a systematic introduction to the development, analysis and implementation of numerical methods for solving financial problems and will focus on computational methods for the pricing and hedging equity and fixed-income derivatives. We will cover three main areas: pricing by formulas and approximations, pricing using lattices (one-, two-, and n-dimensional) and finite differences, and pricing using Monte Carlo simulation. We will cover the pricing of exotic derivatives (such as barrier, Asian, lookback, and multi-asset options), pricing interest rate derivatives in the Heath-Jarrow-Morton and Libor Market Models, and also state-of-the-art topics such as low discrepancy sequences (quasi-Monte Carlo) for financial computations and the pricing of American options using simulation.
Prerequisites:	This is a doctoral-level seminar, but advanced Master's students are welcome to attend. There are no formal course prerequisites, but students must have a strong mathematical background, be familiar with options terminology and concepts at the level of Hull's textbook, and be proficient at programming in C,C++ or Java.
Course Work:	There will be approximately six homework assignments and a course project. The project deliverables will be a written report and a project presentation after the conclusion of the class. Students must attend at least one project presentation, not including their own. Both the homework and the project can be done in groups of three or less. Programming experience with a high-level language, either C, C++, or Java, is essential for this course. The homework and project will require a serious investment of time and effort. Do not take this course unless you are prepared for this very substantial commitment.
Computer Software:	We will use various software packages as appropriate, but the primary programming language for the course homework and project will be C or C++. If you do not have access to a C compiler/editor/debugger, it is recommended that you purchase Visual Studio in the campus bookstore. We will also use Mathematica (symbolic mathematics), MATLAB (matrix computations), SciFinance (next generation financial programming language) and XLL+. All software packages will be available for student use in the business school's Financial Markets Laboratory (room 302 Uris Hall).