Dr Jean-Pierre Zigrand OLD 4.22

This course is available on the MSc in Finance and Economics and MSc in Finance and Economics (Research). This course is not available as an outside option.

Students must have completed Financial Economics (FM436).

Advanced Asset Markets is the continuation of the asset pricing component of FM436, Financial Economics. It allows students to further explore pricing in continuous time by applying the pricing and hedging methods of FM436 to more advanced products and to more complex environments. This course is ideal for the students who would like to apply the tools of continuous time finance learned in FM436 to the pricing and hedging of advanced real-life derivatives and structured products both in complete and in incomplete markets. The following topics will be covered: i. No-Arbitrage Pricing in complete and incomplete markets; ii. Local volatility modelling, including an excursion into local time; iii. Exotic derivatives and Structured Products;  iv.Single- and multi-factor term structure modelling;  v. Equilibrium pricing in complete and incomplete markets; and vi. Endogenous risk modelling with applications to trading and derivatives pricing.

20 hours of lectures, 10 hours of classes and 6 hours of workshops in the LT.

There is no textbook covering the entire material, though Bjork, (“Arbitrage Theory in Continuous Time" (Third Edition, 2009)) is recommended and Gatheral (“Modelling the Volatility Surface: A Practitioner's Perspective" (2007)) is suggested for the volatility modelling component of the course.

Exam (100%, duration: 2 hours) in the main exam period.