SYLLABUS Up: Lifelong-learners
This is the web edition of the distance learning courses taught at the
Royal Institute of Technology in Stockholm (KTH course 2D5244, 4 points),
the University of Adelaide (Masters in Applied Finance programme),
the Swedish Netuniversity (KTH course 2D4282, 4 points) and
independent learners from outside Sweden. The target is to familiarize
the participants with the methodology used in financial engineering to
manage the investment risks in stock and bond markets.
The material has been designed so that it can be studied at different
levels depending on the mathematical background and the ambition of
every participant: with little algebra, practitionners get a practical
understanding of the option payoff dynamics using virtual market
experiments in a java-powered web browser.
At a more advanced level, graduates from quantitative fields learn how to
use stochastic calculus to formulate financial models and to implement
numerical solutions in the VMARKET applet: be patient, it takes
about 15 secs to load with a 56K modem...
press START/STOP to simulate the price of an American vanilla put
option up to half a year before it expires using finite elements.
The black (alt. grey) line shows the present (alt. terminal) value of the
option V(S,t) for a whole range of underlying prices 0 < S < 16.
Click in the plot area to measure the value of the option.
Hedging strategies involving shares, bonds and their derivatives are
discussed, starting from no arbitrage arguments to derive PDEs such as
the celebrated Black-Scholes equation. Solutions obtained using finite
differences, finite elements and Monte-Carlo methods are compared with
each other and provide the background to implement more sophisticated
Assignments are an essential part of the learning process: they are
submitted from the web browser and automatically compiled into web
pages where the students explain with words, equations and programs
how to derive, implement and run their own numerical schemes.
Table of contents