21 370 - Discrete Time Finance

Institution:

Carnegie Mellon University

Subject:

Description:

This course introduces the Black-Scholes option pricing formula, shows how the binomial model provides a discretization of this formula, and uses this connection to fit the binomial model to data. It then sets the stage for Continuous-Time Finance by discussing in the binomial model the mathematical technology of filtrations, martingales, Markov processes and risk-neutral measures. Additional topics are American options, expected utility maximization, the Fundamental Theorems of Asset Pricing in a multi-period setting, and term structure modeling, including the Heath-Jarrow-Morton model. Students in 21-370 are expected to read and write proofs. 3 hours lecture.

Credits:

9.00

Credit Hours:

Prerequisites:

Corequisites:

Exclusions:

Level:

Instructional Type:

Lecture

Notes:

Additional Information:

Historical Version(s):

Institution Website:

www.cmu.edu/

Phone Number:

(412) 268-2000

Regional Accreditation:

Middle States Association of Colleges and Schools

Calendar System:

Semester

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