Special Topics In Quantitative Methods In Finance – Computational Finance (Postgraduate)

19-06-19 web.xrh 0 comment

Course: Special Topics In Quantitative Methods In Finance –  

             Computational Finance

 

Course Objective

This course is an introduction to the numerical techniques used widely by applied economists in finance. Its main goal is to bridge the gap between financial theory and computational practice. This is accomplished with the use of the programming language Matlab which is a powerful numerical computing environment for financial applications.

 

Suggested Textbooks

  • Paolo Brandimarte, Numerical Methods in Finance and Economics: A Matlab- Based Introduction, 2nd Edition, John Wiley & Sons, New York, 2006.
  • John C. Hall, Options, Futures, And Other Derivatives, 8th Edition, Prentice Hall, New Jersey, 2011.

 

Course Description

The following sections will be presented:

  • Introduction to Matlab: Matrices, Basic Functions, Programming (M-files), Diagrams.
  • Binomial Model Simulation: Construction of Binomial Tree, Pricing of European and American Options.
  • Monte Carlo Simulation: Generating Random Numbers, Expected Value Estimation, Pricing of European Options, Number of Replications.
  • Variance Reduction Techniques: Antithetic Sampling, Control Variates, Common Random Numbers – Estimation of the Greeks, Variance Reduction by Conditioning.
  • Hedging Strategies: Simulation of Geometric Brownian Motion, Stop-Loss Hedging, Delta Hedging.
  • Finite Difference Method: Difference Quotients, Construction of Grid, Boundary Conditions, Explicit and Implicit Methods in Pricing European Options, Connection with Trinomial Tree.

All lectures will take place in the P/C lab of the department.

Lecture notes will be distributed during the course by the instructor.