3 credits
Fall 2025 Lecture Distance Learning Upper Division
This course exposes students to a number of financial economics concepts related to arbitrage-free option pricing in the binomial market model and the Black-Scholes model. Specific models include (1) Options and parity relationship between options; (2) Option Pricing under the Binomial model; (3) Option Pricing under the Black-Scholes model; (4) Option hedging and the market maker 's overnight profit; (5) Black Scholes theory with Brownian motion and Ito calculus; (6) Risk-neutral option pricing and Monte Carlo valuation; (7) Stochastic interest rates and Stochastic Volatility. This course provides the background for Couse MFE of the Society of Actuaries and Course 3F of the Casualty Actuarial Society.
Learning Outcomes1Use arbitrage-free option pricing in the binomial market model and the Black-Scholes model.
2Adapt the binomial setting to computing exotic and path-dependent option prices, including the determination of optimal exercise.
3Follow marking-to-market strategies for approximate discrete delta hedging.
Prerequisites
Attachments
made by Purdue students.