This is the syllabus of the course taught at the Royal Institute of Technology in Stockholm (KTH, course 2D5244, 4 points), the University of Adelaide (Master of Applied Finance programme), the Gdansk University of Technology and the Swedish Netuniversity (course 2D4282, 6 ECTS) and is also shared with lifelong-learners on the Internet. The goal is to familiarize students with tools that are commonly used in the modeling of financial products, using real-time data and numerical models to test hedging strategies in a problem-based learning (PBL) environment.
The material has been designed so that it can be studied at three different levels depending on the mathematical background and the ambition of each participant. At the basic level, the concepts are explained using numerical simulation instead of formulae: virtual market experiments, such as the VMARKET applet on-line,translate financial arguments into an intuition for the subject without any mathematics. At an intermediate level, simple algebra is used to complete the basic picture: sections that are marked with a diamond suit in the printed edition appear in grey or black in the document on-line depending on the profile that is associated with every user at login. Such content can be skipped without fear that this will later preclude the understanding of the material at a basic level. In the same manner, advanced sections that are identified with a spade suit enable graduates from quantitative fields to use stochastic calculus, formulate their own models and implement them numerically to calculate the price of exotic contracts. Even if the applets have been specifically designed for this syllabus, virtual experiments also provide useful complements to more classical textbooks, such as the book from J. Hull .
Over the years, M. Bungener, P. Cotton and J. Paget have been an important source of inspiration and it is a pleasure to acknowledge them here. A considerable amount of work was necessary to produce a complete problem-based learning environment, with a richness and complexity that can only multiply mistakes ranging from typos, inconsistencies to programming errors. An large effort has been made to guarantee the highest standards and I would like to thank T. Hurtig and S. González for their contributions. Needless to say that the responsibility of the remaining mistakes is all mine and I will be grateful for criticism and encouragement from the learners directly in the user forum on-line.
André JAUN, Stockholm, August 2005
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