| Week | Topic | Textbook | Lecture Notes |
|---|---|---|---|
| Week 1 (Aug 25) | Basic Probability | 6.1 | 1.1, 1.2, 1.3, 1.4, 2.1, 2.2, 2.3 |
| Week 2 (Sep 01) | Monotonicity and replication, Interest rates and compounding, Zero coupon bonds and discounting, Time value of money | 6.2 | 2.4, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, |
| Week 3 (Sep 08) | Annuities, Stocks, Bonds, Foreign exchange, Derivative contracts, Forward contracts, Forward on asset paying no income | 1.3, 1.5, 2.1, 2.2, 2.3 | 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 |
| Week 4 (Sep 15) | Forward on asset paying known income, Value of forward contract, Forward on stock paying dividends and on currency | 2.4, 2.5, 2.6, 2.7 | 4.7, 4.8, 4.9, 4.10 |
| Week 5 (Sep 22) | Forward zero coupon bond prices, Forward interest rates, Libor, Forward rate agreements and forward libor, Value of floating and fixed cashflows | 3.1, 3.2, 3.3, 3.4, 3.5 | 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7 |
| Week 6 (Sep 29) | Swap definition, Forward swap rate and swap value, Spot-starting swaps, Swaps as difference between bonds | 4.1, 4.2, 4.3, 4.4 | 6.1, 6.2, 6.3. 6.4, 6.5, 6.6 |
| Week 7 (Oct 06) | Midterm Oct 6 Physical versus cash settlement, Futures definition, Futures versus forward prices, Option definitions, Put-call parity | 2.8, 5.1, 5.2, 7.1, 7.2 | 7.1, 7.2, 7.3, 7.4, 7.5, 8.1, 8.2, 8.4, 8.5 |
| Week 8 (Oct 13) | Fall Break | ||
| Week 9 (Oct 20) | Bounds on call prices, Call and put spreads, Call butterflies, Digital options | 7.3, 7.4, 7.5, 7.6 | 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13 |
| Week 10 (Oct 27) | Some advanced probability, Binomial Tree | 8.1 | 9.1, 9.2, 9.3, 10.1, 10.2 |
| Week 11 (Nov 03) | Binomial Tree, Fundamental Theorem of Asset Pricing | 8.1, 8.2, 8.3, 8.4, 10.1 | 10.2, 10.3, 10.4, 10.5, 10.6 |
| Week 12 (Nov 10) | Normal distribution and central limit theorem, Black-Scholes model | 10.1, 10.2, 10.3 | 11.1, 11.2, 12.1, 12.2, 12.3, 13.1, 13.2, 13.3 |
| Week 13 (Nov 17) | Properties of Black-Scholes model, Delta and Vega, Volatility | 10.4, 10.5 | 13.4, 13.5, 13.6 |
| Week 14 (Nov 24) | Brownian motion, Ito’s lemma, Black-Scholes equation | 16.1, 16.2, 16.3, 16.4, 16.5 | 16.1, 16.2, 16.3, 16.4, 16.5 |
| Week 15 (Dec 01) | |||
| Final (Dec 08) | Dec 16 8:30 am |
Below is the approximate schedule of the class. Textbook and lecture notes reading is listed by section number.