The aim is to provide the basic instruments for the valuation of financial derivatives.
During the course, the students will learn the basic concepts of probability theory, which are employed to construct and analyze models of financial markets under uncertainty.
The student will also learn the basic principles of arbitrage pricing and completeness in the market, notions which will be described and analyzed in detail in an elementary model but can be easily extended to more complicated frameworks. Finally, we will illustrate how to represent preferences for a rational decision maker and how to optimally select of a portfolio, given the returns and covariances of the traded assets.
At the end of the course, the student will be able to construct an elementary model for a financial market under uncertainty, to analyze the properties of this market and compute in this framework prices of derivatives and portfolio strategies.