This course is an introduction to stochastic calculus as it is relevant to the pricing and hedging of options and other derivative securities. It is the first of a two-quarter sequence offered in collaboration by the Department of Statistics and the master's program in Mathematical Finance. The main topics to be covered are:

The Fundamental Theorem of Asset Pricing
Martingales
Brownian Motion
The Ito Integral and Ito's Formula
The Black-Sholes Formula
Girsanov's Formula
Currency Options
The Martingale Representation and Hedging

There will be weekly homework assignments, and midterm and final exams. The course assistants will conduct weekly help sessions on Friday afternoons.

Prerequisites:
Enrollment in Mathematical Finance M. Sc. program or consent of instructor.

Required Text:
None.

Recommended Text: Introduction to the Mathematics of Financial Derivatives by Salih Neftci.
LECTURE NOTES will be posted weekly on the web page.