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MS&E 345 - INTRODUCTION TO FINANCIAL ENGINEERING - Stanford Study Resources
  • 2 Pages 345SyllSched2010
    345SyllSched2010

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    MS&E 345 Advanced Topics in Financial Engineering Winter, 2010 Professor: Jim Primbs: OH MW 10:15-11:30am, 444 Terman Class Location and Time: 380- 380W, MW 9:00-10:15am Course Assistant: Gerald Teng Class Description: This course covers the fundamental p

  • 42 Pages 13-Hedging4
    13-Hedging4

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Hedging Primbs, MS&E 345 1 Basic Idea Hedging under Ito Processes Hedging Poisson Jumps Complete vs. Incomplete markets Delta and Delta-Gamma hedges Greeks and Taylor expansions Complications with Hedging Primbs, MS&E 345 2 Hedging Hedging is about the re

  • 12 Pages 11-termstruc(f)
    11-termstruc(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Interest Rate Derivatives Primbs, MS&E 345 1 Parameterizing the linear pricing functional Single factor models, etc. Heath-Jarrow-Morton Primbs, MS&E 345 2 The Big Picture Derivative pricing is nothing more than fitting data points with a linear function.

  • 51 Pages 10-applications4(f)
    10-applications4(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    More Applications of Linear Pricing Primbs, MS&E 345 1 Exchange one asset for another Futures, forwards, forward rates, and swap rates Black's model with stochastic interest rates A generalization of Black-Scholes Interest rate derivatives Bond options Ca

  • 35 Pages 09-Extensions7(f)
    09-Extensions7(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Extending the Linear Functional Form Primbs, MS&E 345 1 Change of numeraire Martingales and equivalent martingale measures Random interest rates Risk neutral worlds, rates of return, and market price of risk Where is the pde hiding now? Time to think. Pri

  • 35 Pages 08-Exotics3(f)
    08-Exotics3(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Applications of the Linear Functional Form: Pricing Exotics Primbs, MS&E 345 1 Black Scholes Dividends Early cash flows Digitals Exotics Asians Barrier Lookbacks American Digitals Primbs, MS&E 345 2 The Black-Scholes formula: This time we use risk neutral

  • 48 Pages 07-Linear2(f)
    07-Linear2(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    The Linear Functional Form of Arbitrage Primbs, MS&E 345 1 The Big Picture The basic argument What linear functionals look like Linear Pricing Interpretation as state prices A first step toward risk neutrality Girsanov's Theorem Summary Primbs, MS&E 345 2

  • 15 Pages 06-RettoLin(f)
    06-RettoLin(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    From the Return Form to the Linear Functional Form of Arbitrage Primbs, MS&E 345 1 Pricing Theory: Return form (pdes) Linear function form (risk neutral) Optimization Primbs, MS&E 345 2 Pricing Theory: Return form (pdes) Linear function form (risk neutral

  • 30 Pages 05-Interest(f)
    05-Interest(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Applications of the Return Form of Arbitrage Pricing: Interest Rate Derivatives Primbs, MS&E 345 1 Interest Rate Derivatives Basics Single Factor Short Rate Models Multi Factor Models Heath-Jarrow-Morton Defaultable Bonds Primbs, MS&E 345 2 Basic Quantiti

  • 69 Pages 04-newpde(f)
    04-newpde(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Applications of the Return Form of Arbitrage Pricing: Equity Derivatives Primbs, MS&E 345 1 Deriving Equations for Derivative Assets: Three step algorithm: (1) Derive factor models for returns of tradable assets. (often involves Ito's lemma.) (2) Apply ab

  • 37 Pages 03-ReturnFormP(f)
    03-ReturnFormP(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    The Return Form of Arbitrage Pricing Primbs, MS&E345 1 Pricing Theory: Return form (pdes) Linear function form (risk neutral) Optimization Primbs, MS&E345 2 Pricing Theory: Returns and Factor Models Return form (pdes) Relationships between returns of asse

  • 18 Pages 02-BlackScholes(f)
    02-BlackScholes(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    A First Look at the Black-Scholes Equation Primbs, MS&E 345 1 Background: Derivative Security: A derivative (or derivative security) is a financial instrument whose value depends on the values of other, more basic underlying variables. ([Hull, 1999]). Exa

  • 60 Pages 01-Math(f)
    01-Math(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    Mathematical Preliminaries Primbs, MS&E 345 1 Math Preliminaries: Our first order of business is to develop mathematical models of asset prices and random factors. For most of this course, we will model prices as continuous time stochastic processes and s

  • 11 Pages 00-Intro(f)
    00-Intro(f)

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    MS&E 345 Advanced Topics in Financial Engineering Jim Primbs Stanford University Winter, 2010 Primbs, MS&E345 1 Course Facts Room and Time: 380-380W, MW 9:00-10:15. Office hours: 444 Terman, after class Web page: http:/www.stanford.edu/~japrimbs/msande345

  • 107 Pages FEbook1MAIN
    FEbook1MAIN

    School: Stanford

    Course: INTRODUCTION TO FINANCIAL ENGINEERING

    THE FACTOR APPROACH TO DERIVATIVE PRICING The BIG Picture in a James A. Primbs January 20, 2009 LITTLE Book 2 Contents 1 Basic Building Blocks and Stochastic Differential Equation Models 1.1 Brownian Motion and Poisson Processes . . . . . . . . . . . . .

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