# Statistical Models for Financial Economics

Hours | 3.0 Credit, 3.0 Lecture, 0.0 Lab |

Prerequisites | STAT 274 |

Taught | Fall |

Programs | Containing STAT 377 |

### 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