Course contents

• Continuous-time stochastic processes and stochastic calculus.
• "No arbitrage" pricing and hedging of options. Martingale measures and the fundamental theorems of asset pricing.
• Interest rate modelling:
  • The HJM-framework.
  • 1-factor (affine) short rate models; their estimation and calibration.
  • Change of numeraire and derivative pricing.
  • Multi-factor models (along these lines)
• Beyond Black-Scholes. The exact topics will depend in the interest of the participants and the lecturer. It could be something like
  • Model extensions: Stochastic volatility, jumps and so-called generalized affine models (not unlike this one would imagine).
  • Contract extensions: Barrier options, symmetry and static hedging.
  • Model risk, volatility misspecification and the "the fundamental theorem of derivative trading".