## 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.

LEC # | TOPICS | READINGS |
---|---|---|

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." Glasserman, Paul. Sections 2.2, 4.1, 4.2, 7.1, and 7.2 in |

4 | Dynamic portfolio choice I: Static approach to dynamic portfolio choice | ## ReferenceCover, Thomas M. "Universal Portfolios." |

5 | Dynamic portfolio choice II: Dynamic programming | ## ReferenceBertsimas, Dimitris, and Andrew W. Lo. "Optimal Control of Execution Costs." |

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." |

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 Davison, A. C., and D. V. Hinkley. Chapter 2 in Stambaugh, Robert F. "Predictive Regressions." |

10 | Volatility models | [Tsay], Sections 3.3-3.5, 3.8. [CL&M], Sections 12.2 (Introduction), 12.2.1. Andersen, Torben G., Tim Bollerslev, Peter Christoffersen, and Francis X. Diebold. "Volatility and Correlation Forecasting." In Ghysels, Eric, Pedro Santa-Clara, and Rossen Valkanov. "Predicting Volatility: Getting the Most Out of Return Data Sampled at Different Frequencies." |