3 FORECASTING WITH UNCERTAINTY

• 3.1 Option pricing for dummies
• 3.2 Simple valuation model using binomial trees
• 3.3 Improved model using stochastic calculus
  • 3.3.1 Wiener process and martingales
  • 3.3.2 Itô lemma
  • 3.3.3 Evaluate an expectancy or eliminate the uncertainty
  
  
• 3.4 Hedging an option with the underlying (Black-Scholes)
• 3.5 Hedging a bond with another bond (Vasicek)
• 3.6 Computer quiz
• 3.7 Exercises
• 3.8 Further reading and links
• 3.9 Quick intermediate evaluation form