Derivative Securities, Fall 2008

Course Details and Schedule


Multivariate calculus (partial derivatives, multiple integrals, Lagrange multipliers, etc.), linear algebra (linear equations, solvability, eigenvalues of symmetric matrices, bases for vector spaces), calculus based probability (probability density functions for univariate and multivariate random variables, conditional and marginal density by integration, the central limit theorem, the formulas for univariate and multivariate gaussian densities), some experience with computing (see below).


Some of the assignments will involve light computation using Microsoft Excel and possibly C++. Students need not have experience with Excel or C++, but they should have used some programming language, such as Matlab, C/C++, R, etc. Students will need access to the Microsoft versions of Excel and probably some C++ compiler. Experience shows that shareware substitutes such as Open Office do not function correctly enough for the purposes of this class. Details are being worked out and will be announced shortly.


The final grade will be determined by the grades on the homework assignments and the final exam, each counting for about half the total. Homework grades will be posted on the nyuHome web site. Only registered students may submit homeworks for grading. There will be a penalty for assignments submitted late, which is an increasing but moderate and unspecified. Within reason, it is better to submit an assignment late but complete rather than on the due date but incomplete.


There is a message board at the nyuHome web site. Sign in with your NYU netid and password, then click on the "Academics" tab, then on the class "Derivative Securities" link (Warning: this will not work until you register for the class.), then the "Communication" button on the left, then (finally) the "Discussion board" link. Please post all academic questions or comments on the message board (questions about an assignment, answers to questions or other comments, announcements of study sessions, etc.). Always check the message board before working on an assignment, as there often will be corrections or hints. Please email an instructor or TA only for personal matters (schedule an appointment, request to submit an assignment late, etc.).


Students are encouraged to discuss homework exercises with each other. Each student must write the solutions himself or herself. Copying of solutions or allowing others to copy your solutions is considered cheating and will be handled according to NYU cheating policies. Code sharing is not allowed. You must type (or create from things you've typed using an editor) every character of code you use.

Weekly schedule (tentative)

Date Lecture topics Readings Due this class
Sept. 3 Forwards, futures, options, arbitrage Kohn’s notes: Section 1; Goodman and Lewis comment; lots of Hull none
Sept. 10 One period models, binomial and trinomial trees, risk neutral pricing tba HW 1
Sept. 17 Multiperiod discrete time models, binomial trees, risk neutral processes tba tba
Sept. 24 The continuous time limit, the Black Scholes formula tba tba
Oct. 1 All about the Black Scholes formula, the Greeks tba tba
Oct. 8 Continuous time random processes, SDEs tba tba
Oct. 15 Backward equations, Ito's lemma, the Black Scholes equation tba tba
Oct. 22 More applications: volatility surface, barrier options, exotic payouts tba tba
Oct. 29 One factor models, choice of numeraire, applications to one factor interest rate models tba tba
Nov. 5 Interest rate derivatives -- swaps, caps, etc. tba tba
Nov. 12 Black's formula for interest rate options tba tba
Nov. 19 Credit risk and credit rate products tba tba
Dec. 3 Pricing models for credit derivatives tba tba
Dec. 10 Review tba tba
Dec. 17 Final exam, same time, same room