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Michael Olafusi

MIT: Analytics of Finance

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You can register on MIT Opencourseware for Analytics of Finance at https://ocw.mit.edu/courses/sloan-school-of-management/15-450-analytics-of-finance-fall-2010/

About the course

This course covers the key quantitative methods of finance: financial econometrics and statistical inference for financial applications; dynamic optimization; Monte Carlo simulation; stochastic (Itô) calculus. These techniques, along with their computer implementation, are covered in depth. Application areas include portfolio management, risk management, derivatives, and proprietary trading.

Syllabus

LEC # TOPICS LECTURE NOTES
1 Arbitrage-free pricing models (PDF - 1.1MB)
2

Stochastic calculus and option pricing

Code: Quadratic variation simulation

(PDF)

(M)

3

Simulation methods

Code: Black-Scholes model Monte Carlo illustration

Code: Black-Scholes with a jump Monte Carlo (PS1, Q2)

Code: Monte Carlo with control variates, stochastic volatility model

(PDF)

(M)

(M)

(M)

4 Dynamic portfolio choice I: Static approach to dynamic portfolio choice (PDF)
5 Dynamic portfolio choice II: Dynamic programming (PDF)
6

Dynamic portfolio choice III: Numerical approximations in dynamic programming

Code: Numerical DP solution

(PDF)

(M)

7 Parameter estimation (PDF)
8 Standard errors and tests (PDF)
9 Small-sample inference and bootstrap (PDF)
10 Volatility models (PDF)
11 Review: Arbitrage-free pricing and stochastic calculus (PDF)
12 Review: DP and econometrics (PDF)

The following handouts and slides were used to supplement lecture materials.

Crossing probabilities of the Brownian motion (PDF)

Key points: Derivatives and Monte Carlo (PDF)

Dynamic programming: Justification of the principle of optimality (PDF)

Examples of dynamic programming problems (PDF)

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