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Financial Engineering
CIS 607
Course Notes
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** Abstract**

This course examines price models of securities and their derivatives, reviewing foundations in the stochastic calculus and probability theory. The focus of the course is on numerical methods and their computational requirements.

Spring 1996 class included Shawn Eastley, Juan Flores, Jason Gillis, and Bart Massey.

These notes were constructed in LaTeX, latex2html, html, and Java. The notes are currently incomplete.

- Stock Price Model
- Stock Price Model (Discrete Form)
- Review: Normal Distribution
- Criticisms of Stock Price Model
- Stock Price Model with Dividends
- Review: Dirac Delta Function
- Stock Price Model with Dividends
- Generalized Stochastic Differential Equations
- Review: Taylor's Theorem in One Variable
- Proof of Ito's Lemma in One Variable
- Review: Taylor's Theorem in Two Variables
- Proof of Ito's Lemma in Two Variables
- Application of Ito's Lemma: Stock Prices
- Review: Lognormal Distribution
- Finding Long-Term Drift of Stock Prices
- Review: Sample Mean
- Review: Sample Variance
- Finding Volatility of Stock Prices
- Black-Scholes PDE (BS-PDE)
- Assumptions in BS-PDE
- European Boundary Conditions for BS-PDE
- Analytic Solution of BS-PDE: European
- Put-Call Parity (European Options)
- Delta Hedging with Black-Scholes
- About this document ...

Fri May 10 18:48:58 PDT 1996