Contingent Claims Valuation

Responsible Teacher Total Hours
(lecture, tutorials, practical lab)
ECTS
Erik Taflin 30 3

Teaching Objectives:
to give the students a deepened knowledge of the Theory of Contingent Claims (European and American types) in discrete and continuous time.

Program (3 hours sessions):
1. Reminder of the theory of contingent claims in a mono-period; reminder of discrete time processes.
2. Valuation of contingent claims in the binomial model.
3. Valuation of contingent claims in a general discrete time model (complete and incomplete cases).
6. Reminder of continuous time processes (Itô’s lemma, Girsanov’s theorem).
7. Valuation of contingent claims in continuous time in a Brownian filtration.
Prerequisites: Risk Management in a mono-period financial market and derivatives (M1), Discrete and continuous time stochastic processes (M1).
Evaluation: Final exam of 2 hours

Bibliography:

  • H. Föllmer and A. Schied: Stochastic Finance, Walter de Gruyter 2002
  • I. Ekeland, N. Fintz and E.Taflin: Les marchés financiers et gestion de portefeuille, Preprint 2007
  • T. Björk: Arbitrage Theory in Continuous Time, 2nd ed. Oxford 2004
  • M. Musiela, R. Rutkowski: Martingale Methods in Financial Modelling, 2nd ed. Springer 2007