Number of hours
- Lectures 16.5
- Projects -
- Tutorials 16.5
- Internship -
- Laboratory works -
- Written tests -
ECTS
ECTS 3.0
Goal(s)
The goal of this course is to present the concepts of pricing and hedging products in continuous time. At the end of the lecture, students will know how to handle vanilla options in the one dimensional Black Scholes model. In particular they shall master the following notions :
Brownian Motion;
Continuous time martingale;
Wienner's and Itô's Integral;
Itô's formulas.
Responsible(s)
Herve GUIOL
Content(s)
- Stochastic processes and Brownian motion
- Gaussian vectors
- Continuous time stochastic processes
- Brownian motion : definition and first properties
- Continuous time martingales
- Filtrations and stopping times
- Martingales : stopping time theorem, applications to Brownian motion, strong Markov property
- Stochastic integral and Itô formula
- Wiener's integral
- Itô's integral
- Itô's formula
- Applications of Itô's formula : representing the Brownian martingales and the Cameron Martin theorem
- Stochastic differential equations
- The Black Scholes model
- The underlying asset
- Replicating strategies
- Pricing and hedging options
A first course in probability and the Stochastic processes and application to Finance lecture of the previous semester.
Test
Evaluation : 50% of Participation et assiduité and 50% of Examen Ecrit (2h)
Resit : 30% of Participation et assiduité (reported score) and 70% of Examen Ecrit (1h30)
Continuous assessment : presence, participation, homework.
Regular & Second Session :
A Written Exam : 2h for session 1, 1h30 for session 2
Calendar
The course exists in the following branches:
- Curriculum - Financial Engineering - Semester 8
Additional Information
Course ID : 4MMIPD6
Course language(s): 
The course is attached to the following structures:
- Team Finance.
You can find this course among all other courses.
Bibliography
El Karoui N. & Gobet E. Les outils stochastiques des marchés financiers, Edition de l'Ecole Polytechnique. ISBN 978-2-7302-1579-4
Lamberton D & Lapeyre B. Introduction au calcul Stochastique appliqué à la finance, Ellipse. ISBN 2-7298-4782-0