The website for this course is on Moodle.
The only materials that are required for this course are the lecture notes, which will be made available on Moodle in a timely manner.
The lecture notes are influenced by a wide variety of sources. The following is a list of some of those sources, and could be considered extra reading if the student needs more detail on a particular subject.
• Aksamit, A., & Jeanblanc, M. (2017). Enlargement of filtration with finance in view. Switzerland: Springer.
• Bachelier, L. (1900). Théorie de la spéculation. In Annales scientifiques de l'École normale supérieure (Vol. 17, pp. 21-86).
• Bates, D. S. (1991). The crash of ʼ87: was it expected? The evidence from options markets. The journal of finance, 46(3), 1009-1044.
• Bates, D.S., (1996), “Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options,” Review of Financial Studies, (Spring) Vol. 9, No. 1, 69-107.
• Baxter, M. and Rennie, A., 1996, Financial Calculus: An Introduction to Derivative Pricing, Cambridge University Press.
• Bielecki, T.R. and Rutkowski, M., 2002, Credit Risk: Modeling, Valuation and Hedging, Springer Finance.
• Black, F. and Cox, J.C., 1976, “Valuing Corporate Securities: Some Effects of Bond Indenture Provisions,” Journal of Finance, 31 (May), 351-368.
• Black, F., and Scholes, M., 1973, “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy, 81 (May-June), 637-654.
• Bhar, R., & Chiarella, C. (1997). Transformation of Heath? Jarrow? Morton models to Markovian systems. The European Journal of Finance, 3(1), 1-26.
• Bjerksund, P., & Stensland, G. (2014). Closed form spread option valuation. Quantitative Finance, 14(10), 1785-1794.
• Brace, A., Gatarek, D., & Musiela, M. (1997). The market model of interest rate dynamics. Mathematical finance, 7(2), 127-155.
• Brennan, M. and Schwartz, E., 1985, “Evaluating Natural Resource Investments,” Journal of Business, 58, 135-157
• Brigo, D. and Mercurio, F. 2006, Interest Rate Models—Theory and Practice: With Smile, Inflation and Credit, 2nd Ed., Springer Finance.
• Buchen, P.W., 2001, “Image Options and the Road to Barriers,” Risk Magazine, 14 (9), 127-130.
• Buchen, P.W., 2012, An Introduction to Exotic Option Pricing, Chapman & Hall.
• Caouette, Altman, and Narayanan, 1998, Managing Credit Risk: The Next Great Financial Challenge, Wiley.
• Carr, P., & Madan, D. (1999). Option valuation using the fast Fourier transform. Journal of computational finance, 2(4), 61-73.
• Chen, R. R., Cheng, X., Fabozzi, F. J., & Liu, B. (2008). An explicit, multi-factor credit default swap pricing model with correlated factors. Journal of Financial and Quantitative Analysis, 43(1), 123.
• Chiarella, C., & Kwon, O. K. (2001). Forward rate dependent Markovian transformations of the Heath-Jarrow-Morton term structure model. Finance and Stochastics, 5(2), 237-257.
• Colwell, D.B., Feldman, D. and Hu, W., 2015, “Non-Transferable Non-Hedgeable Executive Stock Option Pricing,” Journal of Economic Dynamics and Control, Vol. 53, April, pp. 161-191.
• Colwell, D.B., Henker, T., Fong, K., and Ho, J., 2003, “Real Options Valuation of Australian Gold Mines and Mining Companies.” The Journal of Alternative Investments, 23-38.
• Chung, K.L., 1974, A Course in Probability Theory, 2nd Ed., Academic Press.
• Cochrane, J.H., 2001. Asset Pricing, Princeton University Press.
• Cont, R. and Tankov, P., 2008, Financial Modelling with Jump Processes, 2nd Ed., Chapman and Hall.
• Cox, J. C., & Huang, C. F., 1989, “Optimal consumption and portfolio policies when asset prices follow a diffusion process,” Journal of economic theory, 49(1), 33-83.
• Cox, J.C., Ingersoll, J.E., and Ross, S.A., 1985, “A Theory of the Term Structure of Interest Rates,” Econometrica, 53, 385-407.
• Cvitanić, J., and Karatzas, I., 1992, “Convex Duality in Constrained Portfolio Optimization,” Annals of Applied Probability, 2(4), 767-818.
• Dempster, M., Medova, E., and Tang, K. (2008). Long term spread option valuation and hedging. Journal of Banking & Finance, 32(12):2530-2540.
• Dixit, R. K., & Pindyck, R. S. (2012). Investment under uncertainty. Princeton university press.
• Duffie, D., Pan J., and Singleton, K., 2000, “Transform Analysis and Asset Pricing for Affine Jump-Diffusions,” Econometrica, 1343-1376.
• Elliott, R.J., 1982, Stochastic Calculus and Applications, Springer.
• Elliott, R.J., Aggoun, L., and Moore, J.B., 1995, Hidden Markov Models: Estimation and Control, Springer.
• Harrison, J.M., and Pliska, S., 1981, “Martingales and Stochastic Integrals in the Theory of Continuous Trading,” Stochastic Processes and their Applications, 11, 215-260.
• Heath, D., Jarrow, R.A. and Morton, A., 1992, “Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation,” Econometrica, 60, 77-105.
• Heston, S.L., 1993, “A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options”, Review of Financial Studies, 6, 327-343.
• Ho, T.S.Y., and Lee, S.-B., 1986, “Term Structure Movements and the Pricing of Interest Rate Contingent Claims,” The Journal of Finance, 41, 1011-1029.
• Hull, J.C., 2017, Options, Futures, and Other Derivatives, 9th Ed., Pearson.
• Hull, J. and White, A., 1990, “Pricing Interest Rate Derivative Securities,” The Review of Financial Studies, 3, 573-592.
• Jacod, J. and Shiryaev, A.N., 1987, Limit Theorems for Stochastic Processes, Springer.
• Jeffrey, A. (1995). Single factor Heath-Jarrow-Morton term structure models based on Markov spot interest rate dynamics. Journal of Financial and Quantitative Analysis, 30(4), 619-642.
• Karatzas, I., and Kou, S.G. (1996): “On the Pricing of Contingent Claims Under Constraints,” The Annals of Applied Probability, Vol. 6, No. 2, 321-369.
• Karatzas, I., Lehoczky, J.P., Shreve, S.E., (1987). Optimal portfolio and consumption decisions for a “small investor” on a finite horizon. SIAM Journal on Control and Optimization 25 (6) 1557-1586. Doi: 10.1137/0325086
• Karatzas, I. and Shreve, S.E., (I) (1991), Brownian Motion and Stochastic Calculus, 2nd Ed., Springer.
• Karatzas, I. and Shreve, S.E., (II) (1998), Methods of Mathematical Finance, Springer.
• Kirk, E., & Aron, J. (1995). Correlation in the energy markets. Managing energy price risk, 1, 71-78.
• Konstandatos, O., (2008), Pricing Path Dependent Exotic Options: A Comprehensive Mathematical Framework, VDM Verlag Dr. Mueller e.K.
• Lee, R. W. (2004). Option pricing by transform methods: extensions, unification and error control. Journal of Computational Finance, 7(3), 51-86.
• Leland, H.E., (1994), “Corporate Debt Value, Bond Covenants, and Optimal Capital Structure,” Journal of Finance, 49, No. 4, (Sept), 1213-1252.
• Lewis, M., (2010), The Big Short: Inside the Doomsday Machine, W.W. Norton and Company.
• Liptser, R.S. and Shiryaev, A.N (1977), Statistics of Random Processes I: General Theory, Springer-Verlag.
• Lord, R., & Kahl, C. (2007). Optimal Fourier inversion in semi-analytical option pricing. (papers.ssrn.com)
• Margrabe, W. (1978). The value of an option to exchange one asset for another. The journal of finance, 33(1), 177-186.
• McLean, B. and J. Nocera (2010). All the Devils are Here, Portfolio/Penguin Press.
• Merton, R. C., (1973), "An intertemporal capital asset pricing model." Econometrica: Journal of the Econometric Society, 867-887.
• Merton, R.C., (1974), “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance, 29, 449-470.
• Merton, R. C. (1976). Option pricing when underlying stock returns are discontinuous. Journal of financial economics, 3(1-2), 125-144.
• Merton, R.C., 1990, Continuous-Time Finance, Blackwell.
• Musiela, M., & Rutkowski, M. (1997a). Continuous-time term structure models: Forward measure approach. Finance and Stochastics, 1(4), 261-291.
• Musiela, M. and Rutkowski, M., (1997b), Martingale Methods in Financial Modelling, Springer.
• Øksendal, B. (2003). Fractional Brownian motion in finance. Preprint series. Pure mathematics http://urn. nb. no/URN: NBN: no-8076.
• Oksendal, B. (2013). Stochastic differential equations: an introduction with applications. Springer Science & Business Media.
• Palmer, A. (2015). Smart Money: How High Stakes Financial Innovation is Reshaping our World for the Better, Basic Books.
• Pikovsky, I., & Karatzas, I. (1996). Anticipative portfolio optimization. Advances in Applied Probability, 1095-1122.
• Protter, P.E., 2005, Stochastic Integration and Differential Equations, Springer.
• Revuz, D., and Yor, M., 1999, Continuous Martingales and Brownian Motion, 3rd Ed., Springer.
• Rogers, L.C.G. and Williams D., 1994, Diffusions, Markov Processes and Martingales, Vol. 2: Ito Calculus, Cambridge University Press.)
• Ross, S.M., 1980, Introduction to Probability Models, 2nd Ed., Academic Press.
• Rouah, F. D. (2013). The Heston model and its extensions in Matlab and C. John Wiley & Sons.
• Royden, H.L., 1968, Real Analysis, 2nd Ed., MacMillan.
• Schachermayer, W., & Teichmann, J. (2008). How close are the option pricing formulas of Bachelier and Black–Merton–Scholes?. Mathematical Finance: An International Journal of Mathematics, Statistics and Financial Economics, 18(1), 155-170.
• Schönbucher, 2003, Credit Derivatives Pricing Models: Models, Pricing and Implementation, Wiley Finance.
• Schwartz, E., and Smith, J. E., 2000, “Short-term variations and long-term dynamics in Commodity Prices,” Management Science, 46(7), 893-911.
• Shreve, S.E., 2004, Stochastic Calculus for Finance II, Springer.
• Stein, E.M., and Stein, J.C., 1991, “Stock Price Distributions with Stochastic Volatility: An Analytic Approach,” Review of Financial Studies, Vol. 4, No. 4, 727-752.
• Suchard, J. A. (2005). The use of stand alone warrants as unique capital raising instruments. Journal of Banking & Finance, 29(5), 1095-1112.
• Vasicek, O.A., 1977, “An Equilibrium Characterization of the Term Structure,” Journal of Finance, 5, 177-188.
• Wong, B., and Heyde, C.C., 2006, “On Changes of Measure in Stochastic Volatility Models,” Journal of Applied Mathematics and Stochastic Analysis, 1-13.
• Yor, M. (1992). Some aspects of Brownian motion, Part I: Some special functionals, Lect. Math. ETH Z urich, Birkh auser.
• Zhang, B. Y., Zhou, H., & Zhu, H. (2009). Explaining credit default swap spreads with the equity volatility and jump risks of individual firms. The Review of Financial Studies, 22(12), 5099-5131.