Lear to solve and present concrete exercises related to the above mentioned topics, get accquainted with the material of the course by doing.

Traditional exercises accompagning the lecture. Exercises illustrate and extend the material of the course. We try to solve exercises related to the following topics: Recaptiulating some probability theory, Forwards, Futures, and Options, Trading strategies, Arbitrage (Fundamental Theorem of Asset Pricing) Put-call parity, option price range, binomial model (Cox-Ross-Rubinstein) and extensions, option pricing, risk neutral evaluation, replicating trading strategies, Brownian motion (Wiener process), martingales, Ito's formula, change of measure (Girsanov's theorem), Black-Scholes equation, simple stochastic differential equations, implicit volatility, greeks.

Some concrete exercises require a pocket calculator.

Exercises are to be prepared and presented on a voluntary basis. If participation is unsatisfactory two written tests (did not happen so far).

Hull: Options, Futures, and other derivative securities. Bjoerk: Arbitrage theory in continuous time. Wiederholung zu mathematischen Grundlagen: Simon, Blume: Mathematics for economists Ayres: Theory and problems of calculus Spiegel: Theory and problems of statistics Lipschutz: Theory and problems of probability Weiterfuehrende und ergaenzende Literatur: Baxter, Rennie: Financial calculus. Lamberton, Lapeyere: Introduction to stochastic calculus applied to finance. (mathematically slightely advanced)

calculus, linear algebra, and probability theory.