Understanding the fundamentals of a classical area of probability theory, including applications in risk management and option pricing.

The theory of large deviations deals with "rare" events, whose probability decreases exponentially w.r.t. some parameter. A classical example are sample means which are "far" from the true expectation inspite of a "large" sample size. We will cover the following subjects from the general theory: Cramer's theorem, Gärtner-Ellis theorem, general LDP (large deviation principle), Varadhan's lemma, and fundamentals of the Freidlin-Ventzell theory about sample path large deviations. Applications: Option pricing by Monte Carlo (importance sampling), large losses in credit risk management, asymptotics of option prices for short maturities.