Statistics
 

Statistical Models for Financial Economics

Statistical Models for Financial Economics
Valuation of derivative securities, stock price simulation, risk management techniques, interest rate models. Prepares for SOA exam MFE.
STAT
377
 Hours3.0 Credit, 3.0 Lecture, 0.0 Lab
 PrerequisitesSTAT 274
 TaughtFall
 ProgramsContaining STAT 377
Course Outcomes: 

Put-call Parity

Use put-call parity to determine the relationship between prices of European put and call options and to identify arbitrage opportunities

Binomial Model

Calculate the value of European and American options using the binomial model

Black-Scholes option-pricing model

Calculate the value of European options using the Black-Scholes option-pricing model

Interpret the option Greeks

Interpret the option Greeks

Cash flow characteristics

Explain the cash flow characteristics of the following exotic options: Asian, barrier, compound, gap, and exchange

Lognormal distribution and Black-Scholes formula

Explain the properties of a lognormal distribution and explain the Black-Scholes formula as an expected value for a lognormal distribution

Itô's lemma

Apply Itô's lemma in the one-dimensional case

Lognormal stock prices

Simulate lognormal stock prices

Delta-Hedging

Explain and demonstrate how to control risk using the method of delta-hedging

Vasicek and Cox-Ingersoll-Ross bond price models

Evaluate features of the Vasicek and Cox-Ingersoll-Ross bond price models