15.450 | Fall 2010 | Graduate

Analytics of Finance


Course Textbooks

[Back]= Back, Kerry. A Course in Derivative Securities: Introduction to Theory and Computation. New York, NY: Springer, 2005. ISBN: 9783540253730.

[CL&M]= Campbell, John Y., Andrew W. Lo, and A. Craig MacKinlay. The Econometrics of Financial Markets. Princeton, NJ: Princeton University Press, 1996. ISBN: 9780691043012.

[Cochrane]= Cochrane, John H. Asset Pricing. Revised ed. Princeton, NJ: Princeton University Press, 2005. ISBN: 9780691121376.

[D&S]= DeGroot, Morris, and Mark J. Schervish. Probability and Statistics. 3rd ed. Reading, MA: Addison-Wesley, 2002. ISBN: 9780201524888.

[Tsay]= Tsay, Ruey S. Analysis of Financial Time Series. 2nd ed. New York, NY: John Wiley & Sons, 2005. ISBN: 978047169074.

1 Arbitrage-free pricing models

[Back], Chapter 1.

Derman, Emanuel, and Iraj Kani. “The Volatility Smile and Its Implied Tree.” Goldman Sachs Quantitative Research Notes, January 1994.

2 Stochastic calculus and option pricing [Back], Sections 2.1-2.6, 2.8-2.9, 2.11, 13.2, 13.3, and Appendix B.1.
3 Simulation methods

[CL&M], Section 9.4.

Boyle, Phelim, Mark Broadie, and Paul Glasserman. “Monte Carlo Methods for Security Pricing.” Journal of Economic Dynamics and Control 21 (1997): 1267-1321.

Glasserman, Paul. Sections 2.2, 4.1, 4.2, 7.1, and 7.2 in Monte Carlo Methods in Financial Engineering. New York, NY: Springer, 2003. ISBN: 9780387004518.

4 Dynamic portfolio choice I: Static approach to dynamic portfolio choice


Cover, Thomas M. “Universal Portfolios.” Mathematical Finance 1, no. 1 (1991): 1-29.

5 Dynamic portfolio choice II: Dynamic programming


Bertsimas, Dimitris, and Andrew W. Lo. “Optimal Control of Execution Costs.” Journal of Financial Markets 1 (1998): 1-50.

6 Dynamic portfolio choice III: Numerical approximations in dynamic programming  
7 Parameter estimation

[Tsay], Sections 1.2.4, 2.4.2, and 8.2.4.

[Cochrane], Sections 11.1, 14.1, and 14.2.

[CL&M], Section A.2, A.4.

8 Standard errors and tests

[Cochrane], Sections 11.1, 11.3-4, 11.7, and 20.1.

[CL&M], Sections A.2-4.

Cochrane, John H. “New Facts in Finance.” Federal Reserve Bank of Chicago: Economic Perspectives QIII (1999): 36-58.

9 Small-sample inference and bootstrap

[CL&M], Section 7.2.

Efron, Bradley, and R. J. Tibshirani. Sections 4.2-4.3, 10.1-10.2, and 12.1-12.5 in An Introduction to the Bootstrap. New York, NY: Chapman and Hall, 1994. ISBN: 9780412042317.

Davison, A. C., and D. V. Hinkley. Chapter 2 in Bootstrap Methods and Their Application. Cambridge, UK: Cambridge University Press, 1997. ISBN: 9780521574716.

Stambaugh, Robert F. “Predictive Regressions.” Journal of Financial Economics 54 (1999): 375-421.

10 Volatility models

[Tsay], Sections 3.3-3.5, 3.8.

[CL&M], Sections 12.2 (Introduction), 12.2.1.
(note: there are typos in eq. 12.2.19)

Andersen, Torben G., Tim Bollerslev, Peter Christoffersen, and Francis X. Diebold. “Volatility and Correlation Forecasting.” In Handbook of Economic Forecasting. Edited by Graham Elliott, Clive W. J. Granger, and Allan Timmermann. Amsterdam: North-Holland, 2006, pp. 778-878. ISBN: 9780444513953.

Ghysels, Eric, Pedro Santa-Clara, and Rossen Valkanov. “Predicting Volatility: Getting the Most Out of Return Data Sampled at Different Frequencies.” Journal of Econometrics 131 (2006): 59-95.

Course Info

As Taught In
Fall 2010
Learning Resource Types
Problem Sets
Lecture Notes