An introduction to option pricing theory and risk management in the discrete-time, bi-nomial tree model, and the continuous time Black-Scholes-Merton framework. Both the partial differential equations approach and the martingale approach (risk-neutral pricing by expected values) will be developed. The course will cover the basics of Stochastic, Ito Calculus. Since 2015, the course is offered in the flipped format: the students are required to watch lectures online, while problem solving and case and paper presentations are done in class.
The online version of the Caltech Catalog is provided as a convenience; however, the printed version is the only authoritative source of information about course offerings, option requirements, graduation requirements, and other important topics.