A continuation of CSE573 Options and Futures I, this course examines derivative pricing models since Black-Scholes, models for the term structure of interest rates and relevant numerical methods. The course begins with a review of stochastic calculus and stochastic differential equations. Specific topics include arbitrage pricing, equivalent martingale measures, risk neutrality, and optimal stopping times as applied to American options. This course explores various aspects of management of risk associated with operating a multinational enterprise. Topics include sources and measurement of risk and exposure, value at risk, hedging linear and nonlinear derivatives risk, delta-normal VAR, historical simulation VAR, Monte Carlo approaches to VAR, and implementation and evaluation of risk management systems.
Emphasis is given to multivariate and nonlinear methods applied to high-frequency financial data.
Modern Applied Statistics. This course surveys the modern paradigms in international finance. Specifically, the course examines the theory linking the world's various foreign exchange, money, and securities markets, emphasizing global investment and risk management. Topics include spot and forward FX markets, FX options, interest rate parity, purchasing power parity, exchange rate theory, global investing, global FX risk management, and emerging markets and currency crises. This course provides a survey of the structure and dynamics of financial markets, the behavior of financial price series, and trading techniques.