Rutgers University 3 credits 839
This course covers continuous time finance, similar to an advanced Ph.D. course in asset pricing. It follows Financial Modeling I, which covers discrete time finance and continues with continuous-time financial theories. Topic-wise, it covers basic theories (backward and forward equations, change of measure, state pricing, arbitrage pricing, martingales); derivatives pricing (Black-Scholes model, Heston model, Geske model, Merton-Rabinovitch model); term structure of interest rates (Vasicek model, CIR model, HJM model, Hull-White model); multifactor models (Chen-Scott model, Bakshi-Cao-Chen-Scott model, Duffie-Pan-Singleton model); credit derivatives (Jarrow-Turnbull model, Duffie-Singleton model); and some numerical methods (binomial model, finite difference methods, Monte-Carlo). Interested students can get a good idea from the following books: Merton: Continuous Time Finance; Duffie: Dynamic Asset Pricing Theory; Ingersol: Theory of Financial Decision Making; and similar others. Fall semester only. Prerequisites: Financial Modeling I (22:839:571) and Stochastic Calculus for Finance (26:711:563).
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