Introduction to Numerical Finance

Syllabus

• Payments, money creation and destruction, and flow of funds.
• Investment coefficient, interest mass, cumulative log return, and the cash flows of deposits and bonds.
• CAPM, APT, and factor models.
• Pricing cash flows; bond prices, yields, and interest-rate sensitivity.
• Bond portfolios.
• Swaps.
• Payoff and weight functions; payoff functions of forward and option products; static relationships.
• The CRR model and the use of Arrow-Debreu prices in option pricing.
• Continuous-time models of asset price dynamics and the Black-Scholes-Merton model.
• Greeks, pricing by Monte Carlo simulation, and numerical solution of the Black-Scholes equation.
• Summary.