After successful completion of the course, students are able to...
Value and hedge financial instruments and portfolios,
solve the pertinent equations,
present solutions of exercises at the black board,
Appraise suggestions and solutions of their peers,
evaluate own achievements critically,
discuss problems and solution attempts with peers and teachers in a constructive spirit
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.
