Readings

Course Textbooks

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

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

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

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

[Tsay]= Buy at Amazon 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." Journal of Economic Dynamics and Control 21 (1997): 1267-1321.

Buy at Amazon 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

Reference

Cover, Thomas M. "Universal Portfolios." Mathematical Finance 1, no. 1 (1991): 1-29.
5 Dynamic portfolio choice II: Dynamic programming

Reference

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.

Buy at Amazon 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.

Buy at Amazon 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)

Buy at Amazon 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.