20247 - APPLIED NUMERICAL FINANCE
CLMG - M - IM - MM - AFC - CLAPI - CLEFIN-FINANCE - CLELI - ACME - DES-ESS - EMIT
Course taught in English
Go to class group/s: 31
The course provides the essential tools to understand and solve important computational issues in financial engineering. In particular, we deal with the valuation of American and exotic derivatives that do not admit closed form prices. We analyze derivatives on discontinuous underlying assets, focusing on the jump-diffusion model. Monte Carlo methods are then applied to price and hedge derivatives in diffusive models. We provide techniques to improve the efficiency and the accuracy of the Monte Carlo estimate of derivatives prices and sensitivities. Students will be introduced to VBA (Visual Basic for Applications) and will be tutored in the VBA implementation of the algorithms in the lab sessions. However VBA is not mandatory: Students proficient with MatLab (or other programming languages) are allowed to use MatLab instead of VBA for the assignment if they prefer so.
- Introduction to VBA (computer lab sessions).
- Pricing and hedging American and path-dependent options via lattice methods.
- Derivatives on several underlying assets. Currency markets.
- Jump-diffusion models.
- Monte Carlo methods in financial engineering: features, efficiency, and bias.
- Variance reduction techniques.
- Simulation of asset prices.
- Monte Carlo Valuation of the greeks.
The assignment has to be delivered the same day of the written exam and can be shared by a team of five students at the most (but can also be done individually).
The assessment is the same for attending and non attending students.
- Lecture Notes distributed by the instructor.
Intermediate quantitative skills (calculus, probability and algebra) are prerequisites for this course.